Discussant Allen Ferrell Harvard Law School Big Topic 1 Institutional structure that supports firmlevel innovation 2 A little more specifically Potential benefits of linking supply of capital with knowledge of the project ID: 798509
Download The PPT/PDF document "Financing Disruption? Armour..." is the property of its rightful owner. Permission is granted to download and print the materials on this web site for personal, non-commercial use only, and to display it on your personal computer provided you do not modify the materials and that you retain all copyright notices contained in the materials. By downloading content from our website, you accept the terms of this agreement.
Slide1
Financing Disruption?
Armour & Enriques
`
Discussant
Allen Ferrell, Harvard Law School
Slide2Big Topic
1. Institutional structure that supports firm-level innovation
2. A little more specifically: Potential benefits of linking supply of capital with knowledge of the project
`
Slide3Two Literatures
Venture Capital Literature:
Gompers & Lerner; Gilson (“braided contracts”)
Innovation at the firm-level:
See, e.g., Aghion, Reenen & Zingales (2013); Bernstein (2015)
Slide4General comments on exposition
Distinguish between information asymmetry and incomplete information stories
Distinguish between market efficiency and market inefficiency stories
Specific about the most important source of market failure in their opinion
Slide5What’s the problem?
Stein (1988) story: managers judged on what can be observed which then affects incentives.
See also
Aghion
,
Reenen
&
Zingales
(2013)
Pooling of good and bad innovation projects by the market which then affects incentives to engage in innovation.
In this story, market still gets it right on average
Undervaluation of innovation
Market inefficiency story
Slide6Some selective evidence
(1) Fama-French book-to-market factor
Lakonishok, Shleifer & Vishny (1994): low returns on growth indicates market
overvalues
growths stocks
(2) Fama & French (2002): IPO incidence of low-profitability high-growth firms is a long-term phenomenon
(3) Eberhart et al (2004): market under-reacts to increases in R&D
Cifci, Lev and Radhakrishnan (2009): same as Eberhart
but
firm-level earnings guidance removes this
Slide7(4) Bernstein (2015): Firms that have an IPO do less innovation
Slide8What does this mean for policy?
Is there a market failure?
“
Central problem [is
] the
strictly limited pool of expertise regarding a new technology.”
Returns to acquiring expertise (venture capital, institutional investor)
(2) Are IPOs the wrong focus assuming we want to encourage innovation?
(3) Maybe some innovation is wasteful
Slide9Externalities to basic research
Governmental funding of scientific research
Prizes
Give money to universities