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Corporate Finance and Comparative Advantage

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Author Info
Peter Egger ()
Christian Keuschnigg ()

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Abstract

Innovative firms typically have a high growth potential, need external funds to finance investment, and rely on the key effort and know-how of inside entrepreneurs. Given the limited amount of tangible assets and the non-contractible nature of entrepreneurial effort, these firms are often financially constrained. Access to external funds becomes an important factor in the expansion of innovative industries. This paper models a two sector economy of innovative and standard industries and shows how the pattern of comparative advantage is shaped by factor endowments and variables relating to corporate finance. In particular, a larger equity ratio of young entrepreneurial firms and tough corporate governance standards relax the financing constraints and create a comparative advantage in innovative industries

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Publisher Info
Paper provided by Department of Economics, University of St. Gallen in its series University of St. Gallen Department of Economics working paper series 2009 with number 2009-04.

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Length: 359 pages
Date of creation: Mar 2009
Date of revision:
Handle: RePEc:usg:dp2009:2009-04

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Related research
Keywords: Innovative firms; corporate finance; comparative advantage;

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Find related papers by JEL classification:
F11 - International Economics - - Trade - - - Neoclassical Models of Trade
G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
K22 - Law and Economics - - Regulation and Business Law - - - Corporation and Securities Law
L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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