When Less is More: Financial Constraints and Innovative Efficiency
نویسندگان
چکیده
Unlike conventional wisdom, I find more constrained firms have significantly higher innovative efficiency (IE) measured by patent citations (or counts) per dollar of R&D (research and development). This constraints-IE relation is robust to measures of financial constraints, measures of IE, and different sets of control variables. Furthermore, this effect exists only among firms with strong managerial entrenchment and intensifies with product market competition. These findings suggest that financial constraints can increase IE by alleviating suboptimal investments caused by agency problems or cognitive biases. In other words, less can be more when it comes to innovative efficiency.
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