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. DOI: 10.4018/jksr.2010100106 70 International Journal of Knowledge Society Research, 1(4), 69-79, October-December 2010 Copyright © 2010, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited. are empowered by the existence of information asymmetries between managers and financing agents (Goodacre & Tonks, 1995). Despite of the empirical evidence available about the significant differences on the financial structure of innovative and non-innovative firms which explain that innovators are more likely to experience financial constrains (Fazzari et al., 1988), it has been demonstrated that successful innovative activity by firms allow them to obtain monopoly profits, which emerge as important internal resources avoiding firms’ dependence of external financial sources and decreasing the scope of financial constrains (von Kalckeuth, 2004). Accordingly, firms’ size and their adjustment capability (von Kalckreuth, 2006), the ownership of tangible assets, the existence of sustainable profitability rates, and their market position, can explain different intensity levels of financial constraints. Within this framework, this paper aims to enlarge our understanding about the role of finance in the explanation of investment decisions in firms, the significant differences between financial structure of innovators and non-innovators, and the potential of ICT uses to overcome financial constraints inherent to innovative activities. To do that, we have divided the paper in four sections. Section II is focused on the literature review about the existent theoretical and empirical evidences in the relationship between innovation, finance and ICT uses. Section III presents the hypotheses, the methodology and the data set. Section IV contains our statistical test results. And, finally, Section V concludes the paper. 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. Theories of capital structure, although they do not tend to focus directly on firms’ technological traits, but are useful to identify the causes that may explain why more innovative firms use to have a particular financial structure and favour some particular sources of finance (Aghion et al., 2004). fInAncIAL conStrAInS of InnovAtorS’ InveStMentS The causes of financial constraints for innovative firms have been explained in the international literature through different approaches. One approach emphasises information asymmetries between investors and firms’ managers. Difficulties in assessing future cash flows from innovative activity generates the emergence of this lack of equilibrium and it can result in some positive net present value investments not being financed (Goodacre & Tonks, 1995). This situation reflects the effects of short-termism in capital markets (Innovation Advisory Board, 1990) and it originates out of the interaction of financing and investment decisions, as the suppliers of finance have less information available about the profitability of investment projects than firms’ managers or entrepreneurs. Information asymmetries can be divided in two main situations (Laffont & Maskin, 1980): i) adverse selection, leaded by hidden information from managers to financiers; and ii) agency problems, leaded by managers’ hidden actions. Adverse selection leads to signalling problems (Myers, 1984; Myers & Majluff, 1984; 9 more pages are available in the full version of this document, which may be purchased using the "Add to Cart" button on the product's webpage: www.igi-global.com/article/financial-needs-competitivebusiness-model/49205?camid=4v1 This title is available in InfoSci-Journals, InfoSci-Journal Disciplines Communications and Social Science, InfoSciCivic Engagement, Sustainable Planning, and Crisis Response eJournal Collection, InfoSci-Knowledge Discovery, Information Management, and Storage eJournal Collection. Recommend this product to your librarian: www.igi-global.com/e-resources/libraryrecommendation/?id=2
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