2021/36 | LEM Working Paper Series | ||||||||||||||||
Innovation, asymmetric information and the capital structure of new firms |
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Jonathan Taglialatela and Andrea Mina |
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Keywords | |||||||||||||||||
Innovation; information asymmetries; start-up; pecking order; entrepreneurial
finance.
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JEL Classifications | |||||||||||||||||
G32, O16, O30
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Abstract | |||||||||||||||||
The paper focuses on the capital structure of firms in their early years of operation. Through the
lens of Pecking Order Theory, we study how the pursuit of innovation influences the reliance of
firms on different types of internal and external finance. Panel analyses of data on 7,394 German
start-ups show that innovation activities are relevant predictors of the start-ups' revealed
preferences for finance, and that the nature of these effects on the type and order of financing
sources depends on the degree of information asymmetries specific to research and development
activities, human capital endowments, and the market introduction of new products and processes.
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