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Financial Factors Which Stimulate Innovation

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  • David Brophy
  • Joel Shulman

Abstract

Because Innovation requires the commitment of resources to a development with highly uncertain net returns, the methodology of financial economics Is useful In understanding innovation, even to the point of suggesting a relationship between the Incidence and rate of Innovation and the state of key financial factors. Our model posits such a relationship, grouping the key financial factors under the headings of investment valuation and financing: the fundamental components of financial economics. The model argues that the incidence and rate of innovation are related to both valuation and financing factors as well as the Interactions between them. We present a structure for this model and suggest a LISREL methodology for empirically testing these financial factors.

Suggested Citation

  • David Brophy & Joel Shulman, 1993. "Financial Factors Which Stimulate Innovation," Entrepreneurship Theory and Practice, , vol. 17(2), pages 61-75, January.
    • Handle: RePEc:sae:entthe:v:17:y:1993:i:2:p:61-75
    DOI: 10.1177/104225879301700206
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    References listed on IDEAS

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    Cited by:

    1. Mark Freel, 2007. "Are Small Innovators Credit Rationed?," Small Business Economics, Springer, vol. 28(1), pages 23-35, January.
    2. Ekanem, Ignatius, 2005. "‘Bootstrapping’: the investment decision-making process in small firms," The British Accounting Review, Elsevier, vol. 37(3), pages 299-318.
    3. Amnon Frenkel, 2001. "Barriers and Limitations in the Development of Industrial Innovation in the Region," ERSA conference papers ersa01p38, European Regional Science Association.
    4. Linda F. Tegarden & Ann E. Echols & Donald E. Hatfield, 2000. "The Value of Patience and Start-up Firms: A Re-Examination of Entry Timing for Emerging Markets," Entrepreneurship Theory and Practice, , vol. 24(4), pages 41-58, July.
    5. Haber, Sigal & Reichel, Arie, 2007. "The cumulative nature of the entrepreneurial process: The contribution of human capital, planning and environment resources to small venture performance," Journal of Business Venturing, Elsevier, vol. 22(1), pages 119-145, January.

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