Working Paper: CEPR ID: DP9829
Authors: Viral V. Acharya; Zhaoxia Xu
Abstract: This paper examines the relationship between innovation and firms' dependence on external capital by analyzing the innovation activities of privately-held and publicly-traded firms We find that public firms in external finance dependent industries generate patents of higher quantity, quality, and novelty compared to their private counterparts, while public firms in internal finance dependent industries do not have a significantly better innovation profile than matched private firms. The results are robust to various empirical strategies that address selection bias. The findings suggest that public listing is beneficial to the innovation of firms in industries with a greater need for external capital.
Keywords: Finance and Growth; Financial Constraints; Innovation; Private Firms; Public Firms; R&D
JEL Codes: G31; G32; O16; O30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Financial dependence (EFD) (G32) | Innovation (patents higher quantity, quality, novelty) (O39) |
| Public listing (G19) | Innovation (patents higher quantity, quality, novelty) (O39) |
| Public firms (EFD) (G30) | Innovation efficiency (patents per dollar R&D) (O32) |
| Public firms (EFD) (G30) | Earnings management (less engagement) (G39) |
| Public firms (EFD) (G30) | Patents and technologies acquisition (through mergers and acquisitions) (O36) |
| Public firms (IFD) (L39) | Innovation profile (not significantly better than matched private firms) (L39) |