The effect of public subsidies on firms’ investment–cash flow sensitivity: Transient or persistent?

This work analyses the effect of public subsidies on firms’ investments and investment–cash flow sensitivity in a longitudinal sample of 288 Italian unlisted non-venture capital backed owner-managed new-technology-based firms (NTBFs), observed over a 15-year period from 1994 to 2008. Seventy five of these firms received one or more public subsidies in the observation period. We use an error correction model (ECM) specification and system generalised method of moment (GMM) techniques that take into account the endogeneity of public subsidies. First, we find that the investments of small NTBFs are sensitive to internal cash flows, while those of large NTBFs are not. Receipt of public subsidies by small NTBFs results in an increased investment rate and a reduced investment–cash flow sensitivity, in the immediately following year. We interpret these results as an indication of the relaxation of financial constraints. Moreover, while the increase in the investment rate does not persist in the long run, the dependence of investments on cash flow remains negligible after receipt of the first public subsidy. These results support the view that public subsidies can help small NTBFs in persistently removing the financial constraints that bind their investment activity.     

In search of complementary assets: The determinants of alliance formation of high-tech start-ups

Why do new technology-based firms (NTBFs) cooperate? Starting from Teece's [Teece, D.J., 1986. Profiting from technological innovation: implications for integration, collaboration, licensing, and public policy. Research Policy 15, 285-305] conceptual framework and taking advantage of subsequent literature on alliance formation in the resource and competence-based tradition and in the social structure perspective, we derive an empirical model that aims at highlighting the inducements and obstacles that these firms face in alliance formation according to firm-specific characteristics and the nature of the alliance. In particular, a distinction is made between exploitative commercial alliances and explorative technological alliances. The econometric estimates, based on a large sample of Italian young high-tech firms that are observed from 1994 to 2003, provide strong evidence supporting two key intuitions of Teece's work. First, the “combination of specialized complementary assets” appears to be a key driver of the formation of exploitative commercial alliances by NTBFs. More specifically, patent holding affects positively the likelihood to establish commercial alliances, but this propensity is found to rapidly decrease with firm size, suggesting that as long as NTBFs become larger and possess specialized commercial assets their urge for commercial alliances diminishes. Second, following the parallelism set forth by Teece between search for alliance partners and access to external financing, the analysis indicates that potentially beneficial alliances may not take place because of the high transaction costs faced by smaller NTBFs. In this respect, our results clearly support the view that sponsor institutions as public research organizations, venture and corporate venture capitalists may sensibly reduce these costs and that their role crucially depends on both the identity of the sponsor and the type of alliance.     

Founders’ human capital and the growth of new technology-based firms: A competence-based view

In this paper, we analyze empirically the relation between the growth of new technology-based firms and the human capital of founders, with the aim of teasing out the “wealth” and “capability” effects of human capital. For this purpose, we take advantage of a new data set relating to a sample composed of 506 Italian young firms that operate in high-tech industries in both manufacturing and services. In accordance with competence-based theories, the econometric estimates show that the nature of the education and of the prior work experience of founders exerts a key influence on growth. In fact, founders’ years of university education in economic and managerial fields and to a lesser extent in scientific and technical fields positively affect growth while education in other fields does not. Similarly prior work experience in the same industry of the new firm is positively associated with growth while prior work experience in other industries is not. Furthermore, it is the technical work experience of founders as opposed to their commercial work experience that determines growth. The fact that within the founding team there are individuals with prior entrepreneurial experiences also results in superior growth. Lastly, we provide evidence that there are synergistic gains from the combination of the complementary capabilities of founders relating to (i) economic-managerial and scientific-technical education and (ii) technical and commercial industry-specific work experiences. We conclude that the human capital of founders of new technology-based firms is not just a proxy for personal wealth.     

New, technology-based firms in small open economies—An analysis based on the Finnish experience

This paper analyses the roles and impacts of new, technology-based firms (NTBFs) in a small open economy, with empirical data from Finland. It is suggested that in small open economies, NTBFs may fall into a resource trap, which might result in their being relatively less growth oriented than NTBFs in countries where the domestic market is larger. Consequently, in small open economies, the systemic impact of NTBFs could be emphasised rather than their organic growth in terms of the employment that they create.     

How venture capitalists spur invention in Spain: Evidence from patent trajectories

Venture capitalists (VCs) fund the development of promising inventions to turn them into marketable innovations. During this development stage portfolio firms are likely to garner even more inventions at least until the product is fully developed. Once the product is fully developed the focus shifts from development to sales so the number of generated inventions should decrease. This behavior implies that VCs are likely to spur invention according to an inverted U-shape over time. We empirically examine whether patent trajectories are consistent with this hypothesized inverted U-shape using a self-collected dataset containing 233 VC-backed firms and a large set of controls operating in Spain. We find that firms’ patenting activity increases after VC investments. This increase is substantially more pronounced the first two years following VC investments, i.e., patent trajectories follow an inverted U-shape over time. Our more demanding specifications suggest that the sharp increase in patenting right after VCs’ investments is caused by a positive treatment effect over and beyond any likely selection effect. Moreover, we defend that the increase in patenting is not just due to the fact that VCs give money so that firms can patent pre-VC inventions, but also to the fact that VCs fund the development of inventions.     

Entrepreneurship policy and the financing of young innovative companies: Evidence from the Italian Startup Act

While there is a general consensus that young innovative companies (YICs) need special attention by public policy which should aim at alleviating the financial constraints these firms commonly suffer, much less agreement has been reached on the most effective policy instruments reputed to accomplish the task. In this respect, if the scientific debate has very much revolved around the dilemma about the crowding-in or crowding-out effect of public R&D subsidies to firms, there is a dearth of scientific studies which analyse the effectiveness and potential interrelations of different policy instruments which at the same time and in the same institutional context are offered to YICs. By taking advantage of the Italian Startup Act issued in 2012, we analyse, for the first time, the possible existence of interrelationships between firm access to a Government-guaranteed (GG) bank loan programme and fiscal incentives for venture capital (VC) equity investments. Results suggest two important facts. First, the two mechanisms appear to be functional to different typologies of YICs. Second, VC investments significantly reduce the probability to access GG bank loans. Overall, our analysis highlights a sort of “institutional division of labour” between the two measures and depicts what we label as a Task segmentation effect.     

Are new technology-based firms located on science parks really more innovative?: Evidence from Taiwan

The establishment of science parks is employed as a vital strategy for developing high-tech industries in many countries. Whether new technology-based firms (NTBFs) located within science parks are, in comparison to their counterparts located outside of science parks, more efficient in terms of R&D investment remains less explored. The purpose of this paper is to compare the R&D productivity of NTBFs located within and outside of science parks by measuring the elasticity of R&D with respect to output. Using panel data for NTBFs located within and outside the Hsinchu Science Industrial Park (HSIP) in Taiwan, our empirical findings show that the elasticity of R&D with respect to outputs of NTBFs located within HSIP is significantly higher than that of other firms. These findings further reveal that NTBFs located in the science park invest more efficiently. Our results also indicate a slight advantage in R&D for firms in the science park, arising from the fact that the science park offers a clustering effect and establishes links among firms and research institutions.     

How do collaborations with universities affect firms’ innovative performance? The role of “Pasteur scientists” in the advanced materials field

This article aimed to identify the effect of university-industry (U-I) collaborations on the innovative performance of firms operating in the advanced materials field, and by doing so, it proposed an original classification of the research organization partners. The main contribution resides in the estimation of the role played by collaborations with differently experienced scientists. In contrast with previous studies, whose empirical setting was the life science industry, in the advanced materials industry the most effective collaborations are not with “Star scientists”, but with “Pasteur scientists”. The latter concept was empirically tested first by the authors of this article, to deepen the present understanding of industrial heterogeneity in innovation processes and to offer new insights for the formulation of corporate innovation strategies. The results of the estimation of a negative binomial regression model applied to a sample of 455 firms active in the photocatalysis in Japan confirm the idea that engaging in research collaborations, measured as co-invention, with “Pasteur scientists” increases firms’ R&D productivity, measured as number of registered patents. In contrast, we found that firms’ collaborations with “Star scientists” exert little impact on their innovative output.     

R&D cooperation and failures in innovation projects: Empirical evidence from French CIS data

The second French Community Innovation Survey (CIS) indicates that 14% of R&D collaborating firms had to abandon or delay their innovation projects due to difficulties in their partnerships, an outcome which we term “cooperation failures”. Controlling for sample selection on the cooperation decision, our estimates show that firms collaborating with competitors and public research organizations (PROs), especially when they are foreign, are more likely to delay or stop an innovation project because of difficulties encountered in their R&D partnerships. More surprisingly, firms collaborating with their suppliers also face a higher risk of “cooperation failures”. At least for PROs, firms can reduce the risk of “cooperation failures” through previous experiences in partnerships. Larger firms and group subsidiaries are less likely to face “cooperation failures”, and so do firms in industries with a strong appropriability regime.     

NTBFs—the French case

New technology-based firms (NTBFs) represent only a small proportion of the firms established in France each year; they attract very little specific attention from the national statistical apparatus and are considered to be of marginal significance by both the public authorities and financial institutions. Although the definition of NTBFs is problematic, the available evidence suggests that the survival rate of technology-based firms is higher than that of other start-ups. The most successful in terms of growth belong to dense and convergent networks through which they interact with larger firms and research organisations. There is very little public policy specifically targeted on NTBFs in France. Instead, public financing has been devoted mainly to the development of SMEs in general—in support of their role in the creation of new employment—and to supporting technology-based firms, both large and small, to strengthen the international competitiveness of the French industry.     

Characterizing the technology firm: An exploratory study

Technology firms occupy a central position in modern economies. They drive economic growth, productivity gains and have created new industries and innovative products.Many will agree that technology firms are distinguished from others in their emphasis on technological activities. Since this observation is too general, researchers suggested a variety of specific criteria and definitions. A number of definitions of technology firms appear in the literature but many are arbitrary and simplistic and none gained wide acceptance. Similarly, the number of characteristics suggested is large, reflecting a variety of perspectives and interests. In this case too no agreement exists as to which are the important ones. Also, many seem to be interrelated capturing different aspects of the same underlying concepts.This paper is concerned with the issue of definition and classification of technology firms. We demonstrate the usefulness of a different approach to the definition and classification problem. We rely on executives’ evaluations of their firms’ technology profile and level. An analysis of these evaluations reveals the underlying dimensions the executives used in making their judgments. We regard the dimensions we uncover as capturing the essence of technology firms and use them to classify the firms we study. The specific characteristics the executives used to evaluate their firms were derived from a systematic scan of the literature. Thus, the list represents the set of characteristics early researchers viewed as describing and defining technology firms. The connection to early work enhances our findings’ validity and lends some credence to our belief that the three dimensions we uncover (R&D activities which are closely associated with a set of organizational elements and market conditions, product strategy, and corporate culture) can be used by others to define technology firms and classify firms according to their technology level. In our study we use these three dimensions to classify the firms studied. We show that the commonly used practice of classifying firms as high and low technology according to the industry to which they belong is flawed.Our goal in this study is not to offer a “new” or “better” definition and characterization of technology firms or to offer the “best” approach to the generation of the classification criteria. Rather, we demonstrate here the usefulness of a different approach to the problem. While our approach does suffer from limitations it has important advantages. We hope future studies will confirm not only the usefulness of our approach but also the general applicability of the specific criteria we identify in this study.     

Innovation modes in the Swiss service sector: a cluster analysis based on firm-level data

The aim of this paper is, firstly, to contribute to the understanding of innovation patterns in services. To this end, firms which are similar in terms of a large set of innovation indicators were grouped into clusters. For the Swiss case, it was possible to identify five clusters which exhibit clearly different configurations of a large number of innovation-related factors (appropriability, etc.) and several structural properties of firms (size, etc.). The clusters may thus be interpreted as specific “innovation modes”. Secondly, we investigated whether these modes are “economically equivalent”. In such a case, the unordered classifying of similar firms would be more appropriate than the ranking of industries according to their innovativeness. The evidence supports the classification approach quite well; however, the ranking procedure cannot be completely refuted. Finally, this paper yields some insights into the differences between the innovation patterns prevailing in services and in manufacturing.     

Spatial collocation and venture capital in the US biotechnology industry

Biotechnology firms operate in a high-risk and high-reward environment and are in a constant race to secure venture capital (VC) funds. Previous contributions to the literature show that the VC firms tend to invest locally in order to monitor their investments and to provide operating assistance to their target firms. Further, biotechnology is a knowledge-based industry that tends to exhibit spatial clusters, and the firms in such industries may collocate to benefit from gaining access to local markets for specialized inputs (e.g., skilled researchers) and from local knowledge spillovers and network externalities. If such gains exist, we expect that the collocated firms should exhibit positively correlated performance, including in their ability to attract venture capital funds. The purpose of this paper is to empirically measure the strength and spatial extent of the relationships among the amount of funds raised by proximate biotechnology firms. We model these relationships with a spatial autoregression (SAR) model, and we control for characteristics of the biotechnology firms and the VC firms that provide their funds as well as site-specific factors. Based on our fitted SAR model, we find that the amount of venture capital raised by a particular biotechnology firm is significantly influenced by the number of VC firms and the VC funding levels raised by biotechnology firms located within a 10-mile radius, but these relationships are not statistically significant beyond this range.     

The skill bias effect of technological and organisational change: Evidence and policy implications

Previous studies have suggested that technological change is the main cause of the recent increase in demand for highly skilled workers in developed countries. However, a more recent strand of literature has also introduced the “Skill Biased Organisational Change” hypothesis, according to which the increasing diffusion of new organisational practices within firms plays a role in the increasing demand for skilled workers. We estimate a SUR model for a sample of 400 Italian manufacturing firms, showing that upskilling is more a function of reorganisational strategy than a consequence of technological change alone. Moreover, some evidence of superadditive effects emerges, which is consistent with the notion that technology and organisation jointly affect the demand for labour.     

A new tool to classifying new technology-based firm prospects and expectations

This is an exploratory insight into the profile and prospects of growth and success attached to one category of firms, the so-called New Technology-Based Firms (NTBFs). Analysis of our empirically based data from 30 NTBFs leads us to the Market-Technology-Entrepreneurial (M-T-E) Matrix, whose eight three-dimensional quadrants serve to classify high-tech new ventures by performance. A factorial analysis coupled with a discriminate analysis are the statistical tools employed in obtaining the M-T-E Matrix and ascribing predictive capacity to it.     

Novelty-oriented value propositions for new technology-based firms: Impact of business networks and growth orientation

To perform, new technology-based firms (NTBFs) need to develop value for customers that distinguish them from others in the market. Therefore, the development of novelty-oriented value propositions are important, and may be influenced by several factors. We argue that the propensity to become more novelty-oriented can be influenced by an internal drive to grow (growth orientation) and by external contributions (business networks). Hence, the purpose of this paper is to analyse how business networks and growth orientation effects on the novelty orientation of NTBF value propositions. Based on survey data from 401 NTBFs founded between 2013 and 2015, in the nascent start-up phase novelty-oriented value propositions of NTBFs positively relate to informal (management) networks, as well as founders' attitudes towards growth. Thus, such networks and attitudes from founders should be supported in the very early phases of start-up if novelty orientation is to be preferred as a performance determinant.     

Licensing as a commercialisation strategy for new technology-based firms

We investigate licensing as a commercialisation strategy for new technology-based firms (NTBFs) in the biopharmaceutical industry using a combination of survey and database research methods. We found that most firms in our sample were not fully integrated regardless of their company age which is consistent with the picture of NTBFs as agents of technology transfer. Comparing fully and not-fully integrated firms we find differences in the use of licensing strategies. According to Ford and Ryan [Harvard Business Review 59 (1981) 117] fully integrated companies apply licensing for strategic reasons and for financially unattractive projects. Our results provide partial support for this theory.     

The evolution of local production systems: the emergence of the “invisible mind” and the evolutionary pressures towards more visible “minds”

The aim of this paper is to propose an explanation of the changes of dynamic matching between systemic properties of local production systems (LPS) and characteristics of the competitive environment. An evolutionary sequence travelled during the last three decades by Italian LPS is identified and an explanation of long-term dynamics is based on how information flows and knowledge are structured within a local environment. The “traditional” pattern of interlocking behaviours of different agents is defined as cognitive architecture, which evolutionarily emerges as invisible mind. Evolutionary pressures lead new patterns of relationships and interlocking behaviours, which we define as a tendency for more visible “minds” to assert themselves.     

New technology-based firms in Germany: a survey of the recent evidence

The importance and contribution of new technology-based firms (NTBFs) to long-term economic development is at the centre of a controversial debate. This paper provides an overview of the current status of research on various issues concerning NTBFs in Germany. The issues covered include the incidence of start-up firms in Germany's technology-intensive sectors and their regional clustering. The review also shows that NTBFs play an important role with regard to the transfer, adoption and diffusion of technology. The public support and policy initiatives for NTBFs in Germany are also discussed.     

Government,venture capital and the growth of European high-tech entrepreneurial firms

Using a new European Union-sponsored firm-level longitudinal dataset, we assess the impact of government-managed (GVC) and independent venture capital (IVC) funds on the sales and employee growth of European high-tech entrepreneurial firms. Our results show that the main statistically robust and economically relevant positive effect is exerted by IVC investors on firm sales growth. Conversely, the impact of GVC alone appears to be negligible. We also find a positive and statistically significant impact of syndicated investments by both types of investors on firm sales growth, but only when led by IVC investors. Our results remain stable after controlling for endogeneity, survivorship bias, reverse causality, anticipation effects, legal and institutional differences across countries and over time and are stable with respect to potential non-linear effects of age and size of entrepreneurial firms. Overall, our analysis casts doubt on the ability of governments to support high-tech entrepreneurial firms through a direct and active involvement in VC markets.