The Importance of Equity Finance for R&D Activity – Are There Differences Between Young and Old Companies?

This paper analyzes the importance of equity finance for the R&D activity of small and medium-sized enterprises. We use information on almost 6000 German SMEs from a company survey. Using the intensity of banking competition at the district level as instrument to control for endogeneity, we find that a higher equity ratio is conducive to more R&D for young but not for old companies. Equity may be a constraining factor for young companies which have to rely on the original equity investment of their owners since they have not yet accumulated retained earnings and can relay less on outside financing. The positive influence is found for R&D intensity but not for the decision whether to perform R&D. Equity financing is therefore especially important for the most innovative, young companies.R&D activity; equity finance; small and medium-sized enterprises

The importance of equity finance for R&D activity: are there differences between young and oldcompanies?

This paper analyzes the importance of equity finance for the R&D activity of small and medium-sized enterprises. We use information on almost 6000 German SMEs from a company survey. Using the intensity of banking competition at the district level as instrument to control for endogeneity, we find that a higher equity ratio is conducive to more R&D for young but not for old companies. Equity may be a constraining factor for young companies which have to rely on the original equity investment of their owners since they have not yet accumulated retained earnings and can relay less on outside financing. The positive influence is found for R&D intensity but not for the decision whether to perform R&D. Equity financing is therefore especially important for the most innovative, young companies. --R&D activity,equity finance,small and medium-sized enterprises

Job shopping after vocational training? An empirical analysis of the transition from apprenticeship training to work

This econometric study deals with the question as to what extent apprentices after successfully completing their training stay with the firm where they have received their training and, if so, how long that job tenure holds. Determinants of both decisions can be seen from both the employer`s and the employee`s viewpoint. The firm is interested to employ this apprentices in order to collect the returns from its investment in their training which frequently is associated with net costs. On the other hand, the firm dismisses apprentices if training is viewed by the firm as a screening device or if apprentices are engaged in work for which, in terms of wages, they are too expensive afterwards. The young trained worker bases his or her decision to stay or to leave on considerations such as experimenting with several jobs ("job shopping"). The realization of such an experimenting may depend on the situation on the labour market. The empirical part uses individual employee data covering the time period 1980 to 1991 in West Germany and is based on a hazard rate model. --Training,Apprenticeship,Youth Unemployment,Matching

The Importance of Equity Finance for R&D Activity: Are There Differences Between Young and OldCompanies?

This paper analyzes the importance of equity finance for the R&D activity of small and medium-sized enterprises. We use information on almost 6000 German SMEs from a company survey. Using the intensity of banking competition at the district level as instrument to control for endogeneity, we find that a higher equity ratio is conducive to more R&D for young but not for old companies. Equity may be a constraining factor for young companies which have to rely on the original equity investment of their owners since they have not yet accumulated retained earnings and can relay less on outside financing. The positive influence is found for R&D intensity but not for the decision whether to perform R&D. Equity financing is therefore especially important for the most innovative, young companies. --activity,equity finance,small and medium-sized enterprises

The determinants of debt and (private-) equity financing in young innovative SMEs: evidence from Germany

Financial theory creates a puzzle. Some authors argue that high-risk entrepreneurs choose debt contracts instead of equity contracts since risky but high returns are of relatively more value for a loan-financed firm. On the contrary, authors who focus explicitly on start-up finance predict that entrepreneurs are the more likely to seek equity-like venture capital contracts, the more risky their projects are. Our paper makes a first step to resolve this puzzle empirically. We present microeconometric evidence on the determinants of debt and equity financing in young and innovative SMEs. We pay special attention to the role of risk for the choice of the financing method. Since risk is not directly observable we use different indicators for financial and project risk. It turns out that our data generally confirms the hypothesis that the probability that a young high-tech firm receives equity financing is an increasing function of the financial risk. With regard to the intrinsic project risk, our results are less conclusive, as some of our indicators of a risky project are found to have a negative effect on the likelihood to be financed by private equity

The impact of innovation on employment in small and medium enterprises with different growth rates

This article examines the impact of innovation on employment growth in innovating small and medium enterprises using a quantile regression approach. The key findings are that innovation has a positive effect on employment in both growing and shrinking firms. The impact of innovation on employee headcounts is much stronger in companies that are already experiencing strong growth than in their slower growing or shrinking counterparts. Thus, positive employment effects of innovations are not restricted to narrow segments of the economy. Economic policy aimed at bolstering the innovative strength of firms is thus a strong encouragement to employment on a broad basis

Credit and Private Equity Financing in Young Innovative Small and Medium-sized Companies in Germany

Successful newly established companies are a significant factor for the prosperous development of a national economy. Young innovative companies play a key role in the quick market launch and distribution of new technologies and products. As founders only rarely have sufficient own funds, financing has a considerable influence on the success of a newly established company. In the course of the investment boom in the USA and the breathtaking speed at which American Venture Capital (VC) companies listed their newly established portfolio companies in the stock market, the general attitude seems to be that a strong VC sector makes a significant contribution to the establishment of new companies and to innovation. However, it remains to be seen what role banks play in financing young technology companies. The analysis conducted by DIW together with the KfW bank group concerning the financing pattern of credit institutions and private equity companies in the sector of young technology companies is an initial contribution towards closing the gap in regard to the German market.1 The result of the analysis2 is that private equity is very likely to flow into investments bearing a higher financial risk. However, such clear statements cannot be made in connection with the economic performance risk _ possibly expressed in terms of innovation contents and objectives of the project. Many indicators for the economic performance risk _ this includes the company's R&D-orientation as well as various characteristics of the executed innovation projects _ proved to be insignificant or do not show the expected trend. Only the variable 'regular research and development' increases the likelihood of receiving private equity financing. The next step in the course of the research cooperation between DIW Berlin and the KfW bank group will be the quest for the causes of these unexpected findings.

The Determinants of Debt and (Private-) Equity Financing in Young Innovative SMEs: Evidence from Germany

Financial theory creates a puzzle. Some authors argue that high-risk entrepreneurs choose debt contracts instead of equity contracts since risky but high returns are of relatively more value for a loan-financed firm. On the contrary, authors who focus explicitly on start-up finance predict that entrepreneurs are the more likely to seek equity-like venture capital contracts, the more risky their projects are. Our paper makes a first step to resolve this puzzle empirically. We present microeconometric evidence on the determinants of debt and equity financing in young and innovative SMEs. We pay special attention to the role of risk for the choice of the financing method. Since risk is not directly observable we use different indicators for financial and project risk. It turns out that our data generally confirms the hypothesis that the probability that a young high-tech firm receives equity financing is an increasing function of the financial risk. With regard to the intrinsic project risk, our results are less conclusive, as some of our indicators of a risky project are found to have a negative effect on the likelihood to be financed by private equity.monetary policy rules, zero interest rate bound, liquidity trap, rational expectations, nominal rigidities, exchange rates, monetary transmission.Debt and equity financing, financial risk and project risk, venture capital and bank financing

Innovationsaktivitäten von kmU im verarbeitenden Gewerbe: Was zeichnet Imitatoren und originäre Innovatoren aus?

This contribution is concerned with the spread of new products in small and medium-sized enterprises in the manufacturing sector. Based on an empirical study it is analyzed according to which factors planned product launches are either genuine market novelties or products that are new from the enterprise's perspective but already offered on the market by other enterprises. It appears that the main difference between imitative and new product innovators is the extent of resources spent in the innovation process. Markets with high competition also force enterprises to produce imitative innovations but give special incentives to develop market novelties. --KMU,Innovation,Imitation,Diffusion