Funding Innovation Lilly Epple, Matthias Fiedler und Sebastian Würth 19. Nov. 2007 Technologie. Innovationsmanagement
Thesis The financial market failure when it comes to small businesses is remedied by a socially and internally oriented resource acquisition strategy. 19. Nov. 2007 Technologie. Innovationsmanagement
. . . or why Jeff Bezos is lucky to have parents. 19. Nov. 2007 Technologie. Innovationsmanagement
Why is there a financial market failure? l The neoclassical model l In the model credit rationing would not prevail in the long run 19. Nov. 2007 Technologie. Innovationsmanagement
l What causes the problems of small businesses to raise funds? Size matters l Small businesses can not provide the required collaterals l Imperfect competition l Focus on funding low risk projects of larger companies l Assymetric information l Small businesses are charged relatively higher risk premiums 19. Nov. 2007 Technologie. Innovationsmanagement
Adverse selection l Why are some borrowers denied loans even if they were willing to pay more than the market interest rate or put up more collaterals than required? 19. Nov. 2007 Technologie. Innovationsmanagement
Methods l First empirical study of 900 small businesses in Sweden l Two kinds of data analysis: § § Factor analysis Cluster analysis l Response rate of 30% only/ average employees of businesses examined: 5 /5, 3 mio SEK l 66% of the managers rated the chance of becoming financial support from banks rather high 19. Nov. 2007 Technologie. Innovationsmanagement
Use of Financial Bootstrapping Methods (1) buy used instead of new equipment (2) search for best conditions with suppliers (3) retain manager‘s salary (4) delay payments to suppliers (5) use of routines for speeding up invoice (6) Borrow equipment from other businesses 19. Nov. 2007 Technologie. Innovationsmanagement
Groups of Financial Bootstrapping Methods l Results from factor analysis (1) manager‘s / owner‘s/ relatives resources are being used (2) minimization of accounts receivable (3) joint utilization (4) delaying payments (5) minimization of capital investment stock (6) public support 19. Nov. 2007 Technologie. Innovationsmanagement
Groups of Financial Bootstrappers l Delaying Bootstrapper § Low profit/need for additional finance/no longterm bank finance l Private owner-financed bootstrapper § Low profit/immature business/need for additional finance/no long-term bank finance l Minimizing bootstrapper § Low profit/expanding business/NO need for additional finance/long-term bank finance 19. Nov. 2007 Technologie. Innovationsmanagement
Groups of Financial Bootstrappers l Relationship-oriented bootstrapper § High profit/mature business/ no need for additional finance/long-term bank finance l Subsidy-oriented bootstrapper § Low profit/expanding business/need for additional finance/long-term bank finance l Why to create groups classification, meet the need 19. Nov. 2007 Technologie. Innovationsmanagement
Thank you… … for your attention! 19. Nov. 2007 Technologie. Innovationsmanagement
Sources l Klodt, H. (1995). Grundlagen der Forschungs- und Technologiepolitik. München: Vahlen l Stiglitz, J. Weiss, A. (1981). Credit rationing in Markets with imperfect Information. American Economic Review, 71, 3. pp. 393 -410 l Winborg, J. Landström (2000). Financial Bootstrapping in Small Businesses: Examining Small Business Managers‘ Resource Acquisition Behaviors. Journal of Business Venturing, 16, pp. 235 -254 19. Nov. 2007 Technologie. Innovationsmanagement
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