Aghion P., Bond S., Klemm A., Marinescu I. (2004). Technology and financial structure: Are innovative firms different? Journal of European Economic Association, 2(2-3): 277-288
What is the aim of this paper?
Whether financing choices differ across firms by R&D intensity
Bankruptcy costs
Higher probability of bankruptcy —> Increase in costs of financing with debt relative to the costs of financing with equity
Bankruptcy costs are higher for innovative firms with a bigger proportion of intangible assets
Financing with debt increases the probability of an innovative frim to go bankrupt
A higher risk of bankruptcy —> increases the cost of financing with debt
Agency costs and information asymmetries
The principal-agent model rises from information asymmetries between the manager
controlling the firm and investors owning it.
When managers dispose of more information about firm ́s financial prospects than investors,
they will issue new equity if they think that in the future the firm will underperform
—> the new shares issued will be under priced —> dilution cost on the firm ́s initial owners
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