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Capital Control, Debt Financing and Innovative Activity

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  • Dirk Czarnitzki
  • Kornelius Kraft

Abstract

The present paper discusses the effects of dispersed versus concentrated capital ownership on investment into innovative activity. While the market for equity capital might exert insufficient control on top managements' behavior, this weakness may be mitigated by a suitable degree of debt financing. We report the results of an empirical study on the determinants of innovative activity measured by patent applications. Using a large sample of German manufacturing firms, we find that companies with widely held capital stock are more active in innovation, i.e. weakly controlled managers show a higher innovation propensity. However, the higher the leverage the more disciplined the managers behave.

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  • Dirk Czarnitzki & Kornelius Kraft, 2009. "Capital Control, Debt Financing and Innovative Activity," Post-Print hal-00684396, HAL.
    • Handle: RePEc:hal:journl:hal-00684396
    DOI: 10.1016/j.jebo.2009.03.017
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    More about this item

    Keywords

    C25; L11; O31; O32; Innovation; Patents; Corporate Governance; Limited Dependent Variables;
    All these keywords.

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities

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