DP9829 Financial Dependence and Innovation: The Case of Public versus Private Firms

Author(s):	Viral V. Acharya, Zhaoxia Xu
Publication Date:	February 2014
Keyword(s):	finance and growth, financial constraints, innovation, private firms, public firms, R&D
JEL(s):	G31, G32, O16, O30
Programme Areas:	Financial Economics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=9829

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.