Equity Financing and Innovation : Is Europe Different from the United States?

During the mid and late 1990s young, high-tech firms in the U.S. experienced a supply shift in both internal and external equity fueling a finance driven boom in corporate R&D. I estimate dynamic R&D regression models for high-tech firms, separately for the U.K. and Continental Europe, and find significant cash flow effects for newly listed firms in both samples, but only the new, high-tech firms in the U.K. experienced a supply shift in external equity as well. The findings of this paper suggest a channel through which market based financial systems outperform the bank based economies of Continental Europe.QC 2012021