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

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  • Audretsch, David B
  • Weigand, Jürgen G

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.

Suggested Citation

  • Audretsch, David B & Weigand, Jürgen G, 1999. "Does Science Make a Difference? Investment, Finance and Corporate Governance in German Industries," CEPR Discussion Papers 2056, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:2056
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    Cited by:

    1. Erik Lehmann & Jürgen Weigand, 2000. "Does the Governed Corporation Perform Better? Governance Structures and Corporate Performance in Germany," Review of Finance, European Finance Association, vol. 4(2), pages 157-195.
    2. Michele Cincera, 2003. "Financing constraints, fixed capital and R&D investment decisions of Belgian firms," Chapters, in: Paul Butzen & Catherine Fuss (ed.), Firms’ Investment and Finance Decisions, chapter 6, pages 129-152, Edward Elgar Publishing.
    3. Achleitner, Ann-Kristin & Fingerle, Christian H., 2004. "What you get is what you need? The role of venture capitalists in managing growth of new ventures," CEFS Working Paper Series 2004-05, Technische Universität München (TUM), Center for Entrepreneurial and Financial Studies (CEFS).
    4. Haid Alfred & Weigand Jürgen, 2001. "R&D, Liquidity Constraints, and Corporate Governance / Investitionen in FuE, Finanzierungsrestriktionen und Unternehmenssteuerung," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 221(2), pages 145-167, April.
    5. Degryse, H.A. & de Jong, A., 2000. "Investment Spending in the Netherlands : The Impact of Liquidity and Corporate Governance," Discussion Paper 2000-24, Tilburg University, Center for Economic Research.
    6. Marcel Canoy & Machiel van Dijk & Jan Lemmen & Ruud de Mooij & Jürgen Weigand, 2001. "Competition and stability in banking," CPB Document 15.rdf, CPB Netherlands Bureau for Economic Policy Analysis.

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    More about this item

    Keywords

    Corporate Governance; Determinants of Investment;

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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