Innovation And Finance: The Theoretical Links
AbstractThe economic literature shows that the relationship between innovation and finance has a bilateral nature. From one standpoint, financial systems influence innovative activity by exerting their functions through the different components of their structure. From another standpoint, technological innovation impacts on financial systems’ performances and requires the emergence of specific funding solutions. This paper investigates analytically these connections. The results indicate that efficient financial systems can promote innovation by selecting the most valid entrepreneurial initiatives, evaluating their potential earnings and allowing agents to diversify the associated risks. At the same time, different financial structures can determine divergences across countries with respect to their innovative achievements at the sectoral level. It is also found that the resource allocation problem for technological innovation can be mitigated by both the evolution of I.C.T., which decreases information and transaction costs, and the use of venture capital contracts, which reduces asymmetric information and moral hazard problems.
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Bibliographic InfoArticle provided by Dipartimento di Economia e Finanza, LUISS Guido Carli in its journal Economia, Societa', e Istituzioni.
Volume (Year): XVIII (2006)
Issue (Month): 1 ()
innovation; finance; development;
Find related papers by JEL classification:
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
- G20 - Financial Economics - - Financial Institutions and Services - - - General
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- O10 - Economic Development, Technological Change, and Growth - - Economic Development - - - General
- O30 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - General
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