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Does Science Make a Difference? Investment, Finance and Corporate Governance in German Industries

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Author Info
Audretsch, David B
Weigand, Jürgen G

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Abstract

This paper examines the impact of industry knowledge conditions and corporate governance structures on tangible investment and its financing. Based on a large panel data set of German firms we investigate whether liquidity constraints vary systematically across firms engaged in activities reflecting very different knowledge conditions. In particular, we compare the extent of liquidity constraints in science-based firms with non science-based firms. This distinction is important because science-based firms generally fit the characteristics of market failure identified by Kenneth Arrow. Science-based economic activity is subject to high uncertainty, asymmetric knowledge and non-exclusiveness so liquidity constraints might be severe. Surprisingly, science seems to make a difference in that firms in science-based industries are less liquidity constrained than are their non science-based counterparts. In fact, the larger science-based firms do not seem to face liquidity constraints at all. However, governance structures play an important role. After accounting for the mode of corporate governance, we observe that the owner-controlled but not the manager-controlled firms are significantly liquidity constrained.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2056.

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Date of creation: Jan 1999
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Handle: RePEc:cpr:ceprdp:2056

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Related research
Keywords: Corporate Governance; Determinants of Investment;

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Find related papers by JEL classification:
G3 - Financial Economics - - Corporate Finance and Governance
L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
O31 - Economic Development, Technological Change, and Growth - - Technological Change - - - Innovation and Invention: Processes and Incentives

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