Public entrants, public equity finance and creative destruction
We explore the importance of new public firms and public equity finance for R&D and creative destruction in the U.S. high-tech sector. Over 1900 new public firms enter high-tech manufacturing between 1970 and 2004; they are increasingly R&D intensive and rely extensively on public equity finance in the 1980s and 1990s. We estimate dynamic R&D models and find a strong link between public equity finance and R&D for new entrants, but not established entrants or incumbents. Further, recent cohorts of public entrants have a substantial economic impact: by 2000, recent public entrants account for almost half of high-tech sales and more than half of R&D. Variation in the availability of public equity finance has a marked impact on entrant R&D and the rate at which entrants take market share from incumbents. Our findings identify a key channel through which public equity markets facilitate the process of creative destruction.
This is an accepted manuscript from an article from Journal of Banking & Finance, 2010, 34(5); 1077-1088. DOI: 10.1016/j.jbankfin.2009.11.005. Posted with permission.