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Discussion Paper Details

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Title: Financial Dependence and Innovation: The Case of Public versus Private Firms

Author(s): Viral V. Acharya and Zhaoxia Xu

Publication Date: February 2014

Keyword(s): finance and growth, financial constraints, innovation, private firms, public firms and R&D

Programme Area(s): Financial Economics

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.

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Bibliographic Reference

Acharya, V and Xu, Z. 2014. 'Financial Dependence and Innovation: The Case of Public versus Private Firms'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=9829