Stabsseminar med Landier

I dag holder Augustin Landier fra University of Chicago stabsseminar ved Institutt for foretak.

24.01.2003 - Anette W. Petersen

Tema: Entrepreneurial Pressure, Innovation, and Rent Cannibalization

Tid: Fredag 24. januar, kl. 12.15-13.30

Sted: Aud. E

Abstract:
Ideas occur to managers who envision projects that can possibly improve on existing technologies. Such projects can either be implemented either inside existing firms or be financed outside with venture capital. The willingness of an incumbent firm to implement a new idea depends on the price that the firm has to pay the manager to do it inside relative to the threat that the project constitutes if successfully implemented outside. This price depends in turn on the expected payoffs that the manager can get by implementing the project outside. Therefore, the venture capital market affects the innovation policy of established companies by affecting both the set of projects that can be implemented outside and the payoffs required to acquire new ideas. Which projects are done inside vs. outside depends on the balance between two comparative advantages: the incumbent firm can use existing assets while the venture capitalist can write contracts contingent on the project's outcome. In the presence of behavioral or informational frictions, the most innovative projects are implemented in new ventures and more focused firms innovate more. If the marginal innovation is done under pressure from outside, a better VC market increases the innovation rate. If the marginal innovation would have been implemented without outside pressure, a better VC market, by decreasing the rents of being the incumbent firm, decreases the rate of innovation. Therefore, in equilibrium, the relation between innovation and the efficiency of external capital markets is non-monotonic.

Kontaktperson: Hans K. Hvide (59283).