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The Financing of Innovative Firms

Bronwyn Hall

Review of Economics and Institutions, 2010, vol. 1, issue 1

Abstract: To what extent are new and/or innovative firms fundamentally different from established firms, and therefore require a different form of financing? The theoretical background for this proposition is presented, and the empirical evidence on its importance is reviewed. Owing to the intangible nature of their investment, asymmetric-information and moral-hazard, these firms are more likely to be financed by equity than debt and behave in some cases as though they are cash-constrained, especially if they are small. Recognizing the role for public policy in this area, many countries have implemented specific policies to bring the cost of financing innovation more in line with the level that would prevail in the absence of market failures.

Keywords: R&D; financing; innovation; liquidity constraints; venture capital; moral hazard; asymmetric information (search for similar items in EconPapers)
JEL-codes: G32 O32 O38 (search for similar items in EconPapers)
Date: 2010
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