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Informed Finance and Technological Conservatism


  • Raoul Minetti


This paper studies an economy in which firms can operate either a mature or a new technology and lenders acquire information on the productive assets of the borrowing firms that are eligible as collateral. We demonstrate that when contracts are imperfectly enforceable informed lenders offer inexpensive funding for the mature technology but may choose not to finance the new one, seeking to preserve the value of their information on the mature assets. Using firm-level data from Italy, we find that banks that establish long-term relationships with firms promote technological progress on average. However, we find that relationship banks inhibit innovations that entail a large depreciation of existing technology-specific information such as radical innovations. Copyright 2010, Oxford University Press.

Suggested Citation

  • Raoul Minetti, 2010. "Informed Finance and Technological Conservatism," Review of Finance, European Finance Association, vol. 15(3), pages 633-692.
  • Handle: RePEc:oup:revfin:v:15:y:2010:i:3:p:633-692

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    References listed on IDEAS

    1. Steven N. Kaplan & Per Strömberg, 2004. "Characteristics, Contracts, and Actions: Evidence from Venture Capitalist Analyses," Journal of Finance, American Finance Association, vol. 59(5), pages 2177-2210, October.
    2. Aghion, Philippe & Dewatripont, Mathias & Rey, Patrick, 1994. "Renegotiation Design with Unverifiable Information," Econometrica, Econometric Society, vol. 62(2), pages 257-282, March.
    3. Georg Noldeke & Klaus M. Schmidt, 1995. "Option Contracts and Renegotiation: A Solution to the Hold-Up Problem," RAND Journal of Economics, The RAND Corporation, vol. 26(2), pages 163-179, Summer.
    4. Rajan, Raghuram G, 1992. " Insiders and Outsiders: The Choice between Informed and Arm's-Length Debt," Journal of Finance, American Finance Association, vol. 47(4), pages 1367-1400, September.
    5. Jochen Bigus, "undated". "Staging of Venture Financing, Moral Hazard, and Patent Law," German Working Papers in Law and Economics 2002-1-1044, Berkeley Electronic Press.
    6. Gil, Ricard, 2006. "Renegotiation, Learning and Relational Contracting," CEI Working Paper Series 2005-14, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    7. Gompers, Paul A, 1995. " Optimal Investment, Monitoring, and the Staging of Venture Capital," Journal of Finance, American Finance Association, vol. 50(5), pages 1461-1489, December.
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    Cited by:

    1. Minetti, Raoul & Murro, Pierluigi & Paiella, Monica, 2015. "Ownership structure, governance, and innovation," European Economic Review, Elsevier, vol. 80(C), pages 165-193.
    2. Alessandro Giovannini & Maurizio Iacopetta & Raoul Minetti, 2013. "Financial Markets, Banks, and Growth : Disentangling the links," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(5), pages 105-147.

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