Organization of innovation and capital markets |
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Institution: | 1. University of Pretoria, South Africa;2. Helmut Schmidt University, Germany;3. University of Nebraska at Omaha, United States;4. University of Nebraska-Omaha and Loughborough University, United States;1. Neurology Department, Hospital Garcia de Orta, Almada, Portugal;2. Neurosurgery Department, Hospital Garcia de Orta, Almada, Portugal;3. EMG Unit, Neurology Department, Hospital Clinic, University of Barcelona, Barcelona, Spain;1. Department of Finance, Western Kentucky University, Bowling Green, KY 42101, United States;2. Department of Finance, National University of Kaohsiung, Kaohsiung, Taiwan;3. Department of Finance, National Chengchi University, Taipei, Taiwan;1. Department of Mathematics and Research Institute of Natural Science, Gyeongsang National University, Jinju 660-701, Republic of Korea;2. Department of Mathematics and Statistics, York University, 4700 Keele St., Toronto, ON, Canada |
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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. |
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Keywords: | Innovation Organizational form Agency problems Technological synergies Financial imperfections |
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