Creative Destruction and Finance: Evidence from the Last Half Century

Liang, Claire Y.C.; McLean, R. David; Zhao, Mengxin

doi:10.2139/ssrn.1720717

Cited by 6 publications

(5 citation statements)

References 35 publications

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“…For example, Acs and Audretsch () show that small firms have rates of innovation per employee that are far greater (i.e., 6.64 times) than those of large firms in the innovative industries in their sample. Furthermore, small firms, relying heavily on external equity finance, appear to be particularly important for creative destruction (e.g., Brown and Petersen () and Liang, McLean, and Zhao ()). Thus, our evidence linking stock markets and R&D across countries suggests that market‐based systems may have a significant advantage in generating growth through a process of creative destruction driven by the innovation of young and small firms.…”

Section: Discussionmentioning

confidence: 99%

Law, Stock Markets, and Innovation

Brown¹,

Martinsson²,

Petersen

2013

The Journal of Finance

396

194

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We study a broad sample of firms across 32 countries and find that strong shareholder protections and better access to stock market financing lead to substantially higher long-run rates of R&D investment, particularly in small firms, but are unimportant for fixed capital investment. Credit market development has a modest impact on fixed investment but no impact on R&D. These findings connect law and stock markets with innovative activities key to economic growth, and show that legal rules and financial developments affecting the availability of external equity financing are particularly important for risky, intangible investments not easily financed with debt.

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Section: Discussionmentioning

confidence: 99%

Law, Stock Markets, and Innovation

Brown¹,

Martinsson²,

Petersen

2013

The Journal of Finance

396

194

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“…Our measure of target financial independence is inspired by a similar measure in Liang, McLean, and Zhao (). To measure it, we start with the target's sources and uses of cash.…”

Section: Sample and Main Variablesmentioning

confidence: 99%

Target Financial Independence and Takeover Pricing

Jindra

Moeller

2015

J of Financial Research

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In a large sample of U.S. takeovers, we find that acquisitions of targets with greater financial independence are associated with higher takeover premiums and lower acquirer announcement returns. This empirical result is most consistent with targets' deriving bargaining power from their financial independence. Raising external funds is costly. Targets that do not depend on external funds do not need new external capital and have no reason to acquiesce potential takeover premium to acquirers that can provide capital. Therefore, more financially independent targets should be in stronger bargaining positions vis-a-vis potential acquirers, leading to the effect on takeover pricing that we observe.

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“…For example,Kelly and Pruitt (2012) report that their three-pass regression filter beats other estimators with an out-of-sample  2 of between 0.44% and 0.76% for monthly returns(Table 1of their paper). For exactly the same evaluation period,  's out-of-sample  2 is 0.99%.9 In fact,   is similar to measures of creative destruction inFogel, Morck, and Yeung (2008) andLiang, McLean, and Zhao (2011), who use measures of churn of the largest firms based on revenues or employees, rather than market capitalization.…”

mentioning

confidence: 97%

Davids, Goliaths, and Business Cycles

Duarte¹,

Kapadia²

2017

J. Financ. Quant. Anal.

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We show that a simple, intuitive variable, Goliath versus David (GVD), reflects time variation in discount rates related to changes in aggregate business conditions. GVD is the annual change in the weight of the largest 250 firms in the aggregate stock market and is motivated by research that shows that small firms are more severely impacted than large firms by economic shocks due to differences in access to external finance. We find that GVD is the best single predictor of out-of-sample market returns among traditional predictors, predicting quarterly market returns with an out-of-sampleR2of 6.3% in the 1976–2011 evaluation period.

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Creative Destruction and Finance: Evidence from the Last Half Century

Cited by 6 publications

References 35 publications

Law, Stock Markets, and Innovation

Law, Stock Markets, and Innovation

Target Financial Independence and Takeover Pricing

Davids, Goliaths, and Business Cycles

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