Final published version
Research output: Contribution in Book/Report/Proceedings - With ISBN/ISSN › Chapter (peer-reviewed) › peer-review
Research output: Contribution in Book/Report/Proceedings - With ISBN/ISSN › Chapter (peer-reviewed) › peer-review
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TY - CHAP
T1 - Capital Markets, Innovation Systems, and the Financing of Innovation
AU - Hughes, Alan
PY - 2014
Y1 - 2014
N2 - This chapter reviews conceptual and empirical arguments for expecting the structure and nature of capital markets to impact on the financing of innovation. Market failure and innovation systems approaches to problems in the financing of innovation are reviewed, including approaches based on the varieties of capitalism, insider and outsider financial systems, and legal rights literatures. The complementarity between financial markets and other markets coordinating the allocation of resources is emphasized so that the impact of financing problems on innovation behaviour cannot readily be separated from wider system effects. The chapter concludes that there are generic issues involved in the financing of innovation related centrally to the long-term and uncertain nature of the pay-offs to innovation investment. The evidence suggests that different financial systems embedded in different financial market and legal structures address different elements of this problem in different ways. Relatively coordinated and bank-financed insider systems appear to offer greater commitments of long-term patient capital alongside investment in firm-specific human capital. There are big pay-offs in these systems in terms of incremental innovation in particular. The death of bank-based coordinated systems has been, as Mark Twain remarked on reading his obituary, greatly exaggerated.
AB - This chapter reviews conceptual and empirical arguments for expecting the structure and nature of capital markets to impact on the financing of innovation. Market failure and innovation systems approaches to problems in the financing of innovation are reviewed, including approaches based on the varieties of capitalism, insider and outsider financial systems, and legal rights literatures. The complementarity between financial markets and other markets coordinating the allocation of resources is emphasized so that the impact of financing problems on innovation behaviour cannot readily be separated from wider system effects. The chapter concludes that there are generic issues involved in the financing of innovation related centrally to the long-term and uncertain nature of the pay-offs to innovation investment. The evidence suggests that different financial systems embedded in different financial market and legal structures address different elements of this problem in different ways. Relatively coordinated and bank-financed insider systems appear to offer greater commitments of long-term patient capital alongside investment in firm-specific human capital. There are big pay-offs in these systems in terms of incremental innovation in particular. The death of bank-based coordinated systems has been, as Mark Twain remarked on reading his obituary, greatly exaggerated.
KW - Capital markets
KW - innovation
KW - Finance
KW - financing of innovation
KW - capitalism
KW - financial systems
KW - allocation of resources
KW - insider systems
KW - human capital
KW - incremental innovation
KW - coordinated systems
KW - banks
U2 - 10.1093/oxfordhb/9780199694945.013.007
DO - 10.1093/oxfordhb/9780199694945.013.007
M3 - Chapter (peer-reviewed)
SN - 9780199694945
BT - The Oxford Handbook of Innovation Management
A2 - Dodgson, Mark
A2 - Gann, David M.
A2 - Phillips, Nelson
PB - OUP
ER -