Corruption and innovation: a grease or sand relationship?

This paper provides a firm-level empirical analysis on the ways in which corruption affects innovative activity. Particularly with respect to the African continent that is striving to reconcile with instability and poverty, this issue seems to be of utmost importance. Using a newly available dataset on African firms, it is shown that corruption has a negative effect on product innovation and organisational innovation. Corruption does not affect process innovation while it facilitates marketing innovation

Regional financial system and the financial structure of small firms

The capital structure of firms is known to be different not only due to firm characteristics but also to the sources of capital. Therefore, there is a need to understand the supply side effects on a firm´s capital structure. A small firm´s choice of financing sources may be limited by the supply-side financial endowment of the region. Small firms are known to be heavily reliant on internal finance and the quantity and price channels are expected to drive usage of debt. Our findings on 2000 small firms in Eng land show that the quantity and price channels might work only for supply of very local capitals. Firms tend to prefer internal finance when semi-local or national institutions show higher commercial operational distance in their region. These results point out that semi-local and national institutions tend to drive away usage of debt due to monitoring costs or credit rationing, while very local institutions increase the usage of debt through quantity or price channels

Testing the Modigliani-Miller theorem directly in the lab

We present an experiment designed to test the Modigliani-Miller theorem. Applying a general equilibrium approach and not allowing for arbitrage among firms with different capital structures, we find that, in accordance with the theorem, participants well recognize changes in the systematic risk of equity associated with increasing leverage and, accordingly, demand higher rate of return. Yet, this adjustment is not perfect: subjects underestimate the systematic risk of low-leveraged equity whereas they overestimate the systematic risk of high-leveraged equity, resulting in a U-shaped cost of capital. A (control) individual decision-making experiment, eliciting several points on individual demand and supply curves for shares, provides some support for the theoreModigliani-Miller theorem, Experiments, Decision making under risk, General equilibrium

What do scientists want: money or fame?

What makes scientists patent and disclose inventions to employers? Using a new dataset on Max Planck scientists, we explore their motivations to patent and/or disclose inventions. We propose that patenting need not be used for monetary benefits. Scientists value reputation as important use patenting and disclosures as a signal to gain it. We find that it is not monetary benefits that drive patenting and disclosures but expectation of reputation. We also find that experience with the employer matters for disclosure of inventions. This may imply that patents are indeed used as information transfer mechanisms with prime motivation being reputation

Financial signalling by innovative nascent entrepreneurs

External finance is central for nascent entrepreneurs, people in the process of starting new ventures. We argue that nascent entrepreneurs use patents and prototypes in order to signal their ability to appropriate the returns from their innovation as well as the project´s feasibility. Our analysis of 900 nascent entrepreneurs finds that patents and prototypes increase the likelihood of obtaining equity finance. Thus, if signals are credible, innovation positively impacts external financing. Interestingly, entrepreneurs in planning versus early start-up stage portray different signaling effects, indicating that the relation between finance and innovation depends on the stage of a start-up lifecycle

Sectoral R&D intensity and exchange rate volatility: A panel study on economies of the OECD

A recent literature has pointed at potential negative effects of exchange rate volatility on innovation. In this paper, we propose that there may be a direct effect as well as an indirect effect via export activity. We test these hypotheses for sectoral R&D intensities using OECD panel data for manufacturing and services sectors for 14 OECD economies and the years 1987 - 2003. We find that the direct negative effect of volatility is pronounced in manufacturing sector but is dominated by the indirect effect via the export channel. Services do not face any effects of volatility on R&D intensities. While it is not clear which channel dominates our results confirm that there is a negative volatility affect related to openness on a sectoral level

Sectoral R&D intensity and exchange rate volatility: a panel study for OECD countries

A recent literature has pointed at potential negative effects of exchange rate volatility on innovation. In this paper, we propose that there may be a direct effect as well as an indirect effect via export activity. We test these hypotheses for sectoral R&D intensities using OECD panel data for manufacturing and services sectors for 14 OECD economies and the years 1987 - 2003. We find that the direct negative effect of volatility is pronounced in manufacturing sector but is dominated by the indirect effect via the export channel. Services do not face any effects of volatility on R&D intensities. While it is not clear which channel dominates our results confirm that there is a negative volatility affect related to openness on a sectoral level

Testing the Modigliani-Miller theorem directly in the lab : a general equilibrium approach

In this paper, we directly test the Modigliani-Miller theorem in the lab. Applying a general equilibrium approach and not allowing for arbitrage among firms with different capital structures, we are able to address this issue without making any assumptions about individuals' risk attitudes and initial wealth positions. We find that, consistent with the Modigliani-Miller theorem, experimental subjects well recognized the increased systematic risk of equity with increasing leverage and accordingly demanded higher rate of return. Furthermore, the correlation between the value of the debt and equity is -0.94, which is surprisingly comparable with the -1 predicted by the Modigliani-Miller theorem. Yet, a U shape cost of capital seems to organize the data better. JEL Classification : G32, C91, G12, D5