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 :

January 17 2014
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Keywords

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

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