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

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

Viral Acharya, Zhaoxia Xu

Series number :

Serial Number: 
400/2014

Date posted :

January 01 2014

Last revised :

November 20 2018
SSRN Share

Keywords

  • Private Firms • 
  • Public Firms • 
  • innovation • 
  • R&D • 
  • Finance and growth • 
  • Financial Constraints

In this paper, we examine the relation between innovation and a firm's financial dependence using a sample of privately-held and publicly-traded U.S. firms.

We find that public firms in external finance dependent industries spend more on R&D and generate a better patent portfolio than their private counterparts, while public firms in internal finance dependent industries do not have a better innovation profile than private firms. The results are robust to various empirical strategies that address selection bias. The findings indicate that the influence of public listing on innovation depends on the need for external capital.

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Authors

Professor
Real name:
Viral Acharya
Fellow, Research Member
Leonard N. Stern School of Business, New York University
Real name:
Zhaoxia Xu