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The Importance of Equity Finance for R&D Activity – Are There Differences Between Young and Old Companies?

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  • Müller, Elisabeth
  • Zimmermann, Volker

Abstract

This paper analyzes the importance of equity finance for the R&D activity of small and medium-sized enterprises. We use information on almost 6000 German SMEs from a company survey. Using the intensity of banking competition at the district level as instrument to control for endogeneity, we find that a higher equity ratio is conducive to more R&D for young but not for old companies. Equity may be a constraining factor for young companies which have to rely on the original equity investment of their owners since they have not yet accumulated retained earnings and can relay less on outside financing. The positive influence is found for R&D intensity but not for the decision whether to perform R&D. Equity financing is therefore especially important for the most innovative, young companies.

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Bibliographic Info

Paper provided by Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems with number 111.

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Date of creation: Feb 2006
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Handle: RePEc:trf:wpaper:111

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Keywords: R&D activity; equity finance; small and medium-sized enterprises;

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Cited by:
  1. Hottenrott, Hanna & Peters, Bettina, 2012. "Innovative capability and financing constraints for innovation: More money, more innovation?," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 09-081 [rev.2], ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  2. David B. Audretsch & Werner Bönte & Prashanth Mahagaonkar, 2007. "Nascent Entrepreneurs, Innovation and Financing Constraints," DRUID Working Papers, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies 07-09, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.

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