do knowledge conditions make a difference investment, strongfinancestrong.pdfVIP

Do Knowledge Conditions Make a Difference? Investment, Finance and Ownership in German Industries David B. Audretsch * and Jürgen Weigand ** Revision for Research Policy, 24-00, August 2002 Abstract This paper examines the impact of industry knowledge conditions, the mode of corporate control and firm size on tangible investments and its financing. Based on a large panel data set of German firms we investigate whether financing constraints exist for tangible investment and whether there is systematic variation across firms engaged in activities reflecting different knowledge conditions. In particular, we compare the extent of financing constraints in science-based firms with non science-based firms. This distinction is important because science-based economic activity tends to be subject to high degrees of uncertainty, asymmetric information and spillovers of newly created knowledge, making access to external sources of finance difficult. Surprisingly, science seems to make a difference in that firms in science-based industry are less financing constrained than are their non science- based counterparts. However, the mode of corporate control and firm size play an important role. After distinguishing between manager- and owner-controlled firms and controlling for firm size, we observe that the small manager-controlled firms in both science-based and non science-based industries are most financing constrained. By contrast, no financing constraints seem to exist for the smaller owner-controlled firms in science- based industries. JEL classification: G3, L2, O3 Key words: Determinants of investment, financing constraints, corporate governance. * Indiana University, Institute for Development Str