NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Financial Dependence and Innovation: The Case of Public versus Private Firms

Viral V. Acharya, Zhaoxia Xu

NBER Working Paper No. 19708
Issued in December 2013
NBER Program(s):   CF   PR

This paper examines the relationship between innovation and firms' dependence on external capital by analyzing the innovation activities of privately-held and publicly-traded firms. We find that public firms in external finance dependent industries generate patents of higher quantity, quality, and novelty compared to their private counterparts, while public firms in internal finance dependent industries do not have a significantly better innovation profile than matched private firms. The results are robust to various empirical strategies that address selection bias. The findings suggest that public listing is beneficial to the innovation of firms in industries with a greater need for external capital.

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Document Object Identifier (DOI): 10.3386/w19708

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