Organization of innovation and capital markets

Cuneyt Orman ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper develops a theory of the firm scope where not only research but also ordinary production employees can generate inventions. Separating research from production (“specialization”) solves the two-tier agency problem of inducing simultaneously research effort and managerial truthful-reporting but is costly when capital markets are imperfect. Improvements in capital markets, therefore, promote specialization, allowing a greater number of specialized firms to be established and also enabling them to undertake innovative projects with larger potential outcomes. Moreover, this capital market improvement effect is stronger for innovative activities that are less capital-intensive and that have weaker synergies with existing production activities. The model can help us understand the explosion of small company innovation in the U.S. since late 1970s and the contribution of venture capital to this change.

Keywords: Innovation; Organizational form; Agency problems; Technological synergies; Financial imperfections. (search for similar items in EconPapers)
JEL-codes: D2 D82 D86 G24 O32 (search for similar items in EconPapers)
Date: 2015-07, Revised 2015-02
New Economics Papers: this item is included in nep-cfn, nep-cse, nep-cta, nep-ent, nep-ino, nep-knm and nep-ppm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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https://mpra.ub.uni-muenchen.de/65441/1/MPRA_paper_65441.pdf original version (application/pdf)

Related works:
Journal Article: Organization of innovation and capital markets (2015)
Working Paper: Organization of Innovation and Capital Markets (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:65441

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