Financial Needs for a Competitive Business Model in the Knowledge Society

Financial Needs for a Competitive Business Model in the Knowledge Society

David Castillo-Merino, Dolors Plana-Erta
Copyright: © 2010 |Pages: 11
DOI: 10.4018/jksr.2010100106
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Abstract

This paper investigates the constraints for companies to innovate in order to be competitive in the knowledge society. Using a large and original data set of Catalan firms, the authors have conducted a micro econometric analysis following Henry et al.’s (1999) investment model and von Kalckreuth (2004) methodology empirically contrasting the relationship between firms’ investment spread over time and their financial structure. Results show that it exits a positive and significant relationship between firms’ investment shift and financial structure, emerging financial constraints for more innovative firms. Furthermore, these constraints are higher for micro companies and firms within the knowledge-advanced services’ industry. Finally, the authors find that advanced ICT uses by more innovative firms allow them to reduce constraints of access to sources of finance.
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Theoretical Framework: Innovation, Finance And Ict Uses

Investment decisions in innovative firms are influenced by financial structure. Empirical literature results in this field show that there are important constrains for financing innovative investments among companies. These constrains emerge for the lack of equilibrium between the economic traits of innovation and the economic behaviour of finance agents. As financial resources are not perfectly allocated among firms, differences between external resources cost and the opportunity cost of internal resources emerge. The different theories that try to explain this relationship argue that a firms’ profitability (Henry et al., 1999), the disposal of free internal cash flow and the cost of external resources affects significantly the decision of investment in innovation.

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