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The Financing of Innovative Firms

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  • Bronwyn H. Hall

    (University of California, Berkeley, University of Maastricht)

Abstract

To what extent are new and/or innovative firms fundamentally different from established firms, and therefore require a different form of financing? The theoretical background for this proposition is presented, and the empirical evidence on its importance is reviewed. Owing to the intangible nature of their investment, asymmetric-information and moral-hazard, these firms are more likely to be financed by equity than debt and behave in some cases as though they are cash-constrained, especially if they are small. Recognizing the role for public policy in this area, many countries have implemented specific policies to bring the cost of financing innovation more in line with the level that would prevail in the absence of market failures.

Suggested Citation

  • Bronwyn H. Hall, 2010. "The Financing of Innovative Firms," Review of Economics and Institutions, Università di Perugia, vol. 1(1).
    • Handle: RePEc:pia:review:v:1:y:2010:i:1:n:4
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    More about this item

    Keywords

    R&D; financing; innovation; liquidity constraints; venture capital; moral hazard; asymmetric information;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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