Working Paper: NBER ID: w19708
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: innovation; financial dependence; public firms; private firms; patents
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 |
|---|---|
| Public listing (G19) | Innovation outcomes in EFD industries (O36) |
| Public listing (G19) | Quantity of patents in EFD industries (L69) |
| Public listing (G19) | Quality of patents in EFD industries (L15) |
| Public listing (G19) | Novelty of patents in EFD industries (O39) |
| Public listing (G19) | Propensity to innovate in EFD industries (O39) |
| Public listing (G19) | Innovation outcomes in IFD industries (O36) |
| Public listing with greater need for external capital (G24) | Lower real earnings management (J31) |
| Lower real earnings management (J31) | Support for innovative activities (O35) |