Start-up subsidies and innovation in new high-tech ventures: does the policy instrument matter?
(with R. Richstein)

New firms in high-tech sectors contribute to innovation, competition and employment growth. At the same time, positive externalities such as knowledge spillovers prevent entrepreneurs from appropriating the full returns they create though their investments. Moreover, uncertainty and information asymmetry pose challenges for start-up financing. Hence, public policy programs were established to support new firms. This study evaluates the effects of program participation on start-up performance in a sample of new high-tech firms founded in Germany between 2005 and 2012. Distinguishing between grants and subsidized loans and after matching recipient and non-recipient firms based on a broad set of founder and company characteristics, we find grants to be better suited to increase high-risk R&D investments compared to loans. Results, however, also suggest that only the joint receipt of grants and loans leads to higher innovation performance. Although there are little effects on overall employment and revenue and default risk is rather higher than lower, we conclude that R&D-financing may benefit from grants without repayment obligation. Combined with grants, subsidized loans help turning research results into marketable product through complementary investment in tangible assets. Finally, we find a crowding-in rather than a crowding-out of private venture capital.


On knowledge spillovers from subsidized R&D and the productivity of non-subsidized firms
(with C. Lopes-Bento)

Innovation policy encourages firms’ participation in co-funding schemes for R&D projects. Yet, the distribution of awarded grants tends to be highly skewed with few firms receiveing the lion’s share of the public money. From a welfare perspective, supporting a small number of selected firms can be an efficient policy provided that the subsidies trigger knowledge spillover generating R&D in the subsidized firms. This study investigates whether the effect of subsidies go beyond the subsidized firms by affecting productivity of non-subsidized ones. We find that research subsidies affect productivity of non-subsidied positivly, while development subsidies do not. Dynamic model specifications further show that in the longer run, development subsidies lead to business stealing by promoting product and process development in the subsizied firms with little positive spillovers to the non-recipients. When distinguing R&D-active and non-R&D-active firms among the non-subsidized firms, we see that adverse competitive effects are stronger for the latter. Conducting own R&D may therefore increase firms’ ability to realize effective knowledge spillovers and to avoid being harmed by competitive pressure from other firms product or process innovations.  


R&D Subsidies and Firms’ Cost of Debt
(with S. Demeulemeester)

Financing research and development (R&D) through loans is usually a costly endeavor. Information asymmetry, outcome uncertainty and low collateral value tend to increase the cost of debt. Based on a large panel of firms, this study shows that recipients of public R&D grants, on average, face lower costs of debt. Immediate effects on cost of debt suggest that a process of certification in which the subsidy signals the quality of the firm’s R&D to external lenders explains this observation. In addition, longer-term effects from an R&D grant receipt may point to a resource effect that facilitates investment in R&D such as prototyping and therefore provide tangible outcomes that may inform lenders on the firms R&D quality. The comparison between young ventures and established firms, however, shows that for the former short-term effects prevail primarily for subsidies for basic research. At a stage where outcome uncertainty and information asymmetries are particularly high, basic research grants may signal quality of more radical R&D endeavors. Young ventures also experience a longer-term impact from subsidies for development projects, which could point to funding of prototyping.  


What’s behind Multiple Institutional Affiliations in Economics and Management Research?
(with C. Lawson)

Collaboration is not the only way in which researchers seek to increase access to resources, networks or know-how. Institutional affiliations are another source of resources and network access. This paper examines the recent phenomenon of multiple institutional affiliations in the economics and management disciplines. Using bibliometric data as well as data from an original survey of authors in Japan, Germany and the UK, we show that multiple affiliations are widespread. Unlike other forms of collaboration such as co-authorship, we do not find that multiple affiliations are per-se positively linked to higher quality research papers. We argue that motivations to engage may hold the clue to why this is the case.