Young Innovative Firms, Investment-Cash Flow Sensitivities and Technological Misallocation

Can technological misallocation generate financial frictions? We build a theoretical model with testable implications, in which the misallocation between R&D and production activities generates borrowing constraints. The investor offers the innovator a rent that is contingent to the success of...

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Autores Principales: Valencia-Arana, Oscar, Gomez-Gonzalez, Jose Eduardo, Garcia-Suaza, Andres
Otros Autores: Facultad de Economía
Formato: Documento de trabajo (Working Paper)
Lenguaje:Español (Spanish)
Publicado: 2017
Materias:
G11
033
D86
Acceso en línea:http://repository.urosario.edu.co/handle/10336/13524
id ir-10336-13524
recordtype dspace
spelling ir-10336-135242019-09-19T12:37:01Z Young Innovative Firms, Investment-Cash Flow Sensitivities and Technological Misallocation Valencia-Arana, Oscar Gomez-Gonzalez, Jose Eduardo Garcia-Suaza, Andres Facultad de Economía Economía financiera Análisis de inversiones Finanzas Inversiones Moral hazard Endogenous borrowing constraints Technological misallocation G11 033 D86 Can technological misallocation generate financial frictions? We build a theoretical model with testable implications, in which the misallocation between R&D and production activities generates borrowing constraints. The investor offers the innovator a rent that is contingent to the success of its project in order to make them exert an incentive-compatible effort level. However, this rent distorts the allocation of effort between activities. Specifically, it leads to a suboptimal level of effort impulsing a reallocation of resources from production to R&D. Consequently, the investor cannot appropriate the surplus resulting from innovation. This distortion increases the cost of external financing for firms that have large amount of intangible assets. Using Compustat data for manufacturing firms in the United States between 1982 and 2007, we show that cash-flow sensitivities are positive and increasing in firms with high R&D intensities. 2017-06-07 2017-07-10T19:15:58Z info:eu-repo/semantics/workingPaper info:eu-repo/semantics/publishedVersion http://repository.urosario.edu.co/handle/10336/13524 spa info:eu-repo/semantics/openAccess application/pdf Acharya, V. V., Almeida, H., and Campello, M. (2007). Is cash negative debt? a hedging perspective on corporate financial policies. Journal of Financial Intermediation, 16(4):515–554. Chan, L. K., Lakonishok, J., and Sougiannis, T. (2001). The stock market valuation of research and development expenditures. The Journal of Finance, 56(6):2431–2456. Guariglia, A. (2008). Internal financial constraints, external financial constraints, and investment choice: Evidence from a panel of uk firms. Journal of Banking & Finance, 32(9):1795–1809. Kaplan, S. N. and Zingales, L. (2000). Investment-cash flow sensitivities are not valid measures of financing constraints. The Quarterly Journal of Economics, 115(2):707–712. Rajan, R. G. and Zingales, L. (1998). Financial dependence and growth. American Economic Review, 88(3):559–86. Whited, T. M. and Wu, G. (2006). Financial constraints risk. Review of Financial Studies, 19(2):531–559.
institution EdocUR - Universidad del Rosario
collection DSpace
language Español (Spanish)
topic Economía financiera
Análisis de inversiones
Finanzas
Inversiones
Moral hazard
Endogenous borrowing constraints
Technological misallocation
G11
033
D86
spellingShingle Economía financiera
Análisis de inversiones
Finanzas
Inversiones
Moral hazard
Endogenous borrowing constraints
Technological misallocation
G11
033
D86
Valencia-Arana, Oscar
Gomez-Gonzalez, Jose Eduardo
Garcia-Suaza, Andres
Young Innovative Firms, Investment-Cash Flow Sensitivities and Technological Misallocation
description Can technological misallocation generate financial frictions? We build a theoretical model with testable implications, in which the misallocation between R&D and production activities generates borrowing constraints. The investor offers the innovator a rent that is contingent to the success of its project in order to make them exert an incentive-compatible effort level. However, this rent distorts the allocation of effort between activities. Specifically, it leads to a suboptimal level of effort impulsing a reallocation of resources from production to R&D. Consequently, the investor cannot appropriate the surplus resulting from innovation. This distortion increases the cost of external financing for firms that have large amount of intangible assets. Using Compustat data for manufacturing firms in the United States between 1982 and 2007, we show that cash-flow sensitivities are positive and increasing in firms with high R&D intensities.
author2 Facultad de Economía
author_facet Facultad de Economía
Valencia-Arana, Oscar
Gomez-Gonzalez, Jose Eduardo
Garcia-Suaza, Andres
format Documento de trabajo (Working Paper)
author Valencia-Arana, Oscar
Gomez-Gonzalez, Jose Eduardo
Garcia-Suaza, Andres
author_sort Valencia-Arana, Oscar
title Young Innovative Firms, Investment-Cash Flow Sensitivities and Technological Misallocation
title_short Young Innovative Firms, Investment-Cash Flow Sensitivities and Technological Misallocation
title_full Young Innovative Firms, Investment-Cash Flow Sensitivities and Technological Misallocation
title_fullStr Young Innovative Firms, Investment-Cash Flow Sensitivities and Technological Misallocation
title_full_unstemmed Young Innovative Firms, Investment-Cash Flow Sensitivities and Technological Misallocation
title_sort young innovative firms, investment-cash flow sensitivities and technological misallocation
publishDate 2017
url http://repository.urosario.edu.co/handle/10336/13524
_version_ 1645141872775004160
score 11,489418