Firm Collateral and the Cyclicality of Knowledge Intensity
2008 (English)Report (Other academic)
The Schumpeterian view on Business cycles treats recessions as a cleansingmechanism and a state where firms can regroup and innovate. Firms need toaccess finance externally in order to compensate declining cash flow inrecessions. Due to financial frictions, the literature proposes that firms needto post collateral in order to mitigate problems of information asymmetries.In this paper I view knowledge within a firm as a prerequisite for it to beinnovative.Combining financial frictions and firm knowledge intensity the overallhypothesis of this paper is: Firms which have collateral can retain itsknowledge intensity when cash flow declines. This enables firms withcollateral to benefit from recessions like Schumpeter proposed.In this paper I explore the impact of firm collateral on the cyclicality ofknowledge intensity. This is conducted through using firm level data on14,500 Swedish manufacturing firms over the period 1997-2004. The mainresults are: (i) the knowledge intensity of a firm without collateral is procyclical.I.e. its share of highly educated employees is positively correlatedwith sales variation; (ii) on the other hand, the knowledge intensity of firmswith collateral is counter-cyclical.Through retaining their knowledge intensity even as sales drops firmswith collateral can benefit from recessions as Schumpeter proposed.
Place, publisher, year, edition, pages
CESIS, KTH Royal Institute of Technology , 2008. , 34 p.
CESIS Working Paper Series in Economics and Institutions of Innovation, 134
Incomplete markets, asymmetric information, business fluctuations; cycles, corporate finance, innovation.
IdentifiersURN: urn:nbn:se:kth:diva-72389OAI: oai:DiVA.org:kth-72389DiVA: diva2:487542
QC 201202082012-02-082012-01-312012-02-08Bibliographically approved