Otto Toivanen

Innovation and the Market Value of UK Firms, 1989-1995

Using a new data set covering a sample of UK firms, 1989-1995, we study the impact of innovation and innovation assets on firm value. We find, for all reporting firms, that the now of R&D and the use of new technologies (as measured by investment in tangible assets) have significant positive impacts on market value. A patent count variable is insignificant in cross section estimates, although significant but impacting negatively in panel estimates. A sample of firms reporting their R&D for the first dine yields much larger estimates of the impact of R&D on market value than in the sample of all reporting firms. Copyright 2002 by Blackwell Publishing Ltd

Is there adverse selection in the credit market

Despite a huge theoretical literature on credit markets charaterized by asymmetric information little is known about the structure of real world credit contracts or the nature of the underlying informational regime on which they are predicated. A model is constructed and tested that enables delineation of credit contract features and establishment of the nature of the underlying informational regime. Large sample estimates based on individual loans from a major UK bank are shown to support both the symmetric and asymmetric information variants of the model: better borrowers get larger loans and lower interest rates; collateral provision and loan size reduce the interest rate paid. However, consistent with a regime of symmetric information collateral levels are found to be independent of borrower type. Finally, in line with the insurance literature, the bank is shown to use qualitative as well as quantitative information in the structuring of loan contracts to small businesses.

Estimating the benefits of targeted R&D subsidies

We study the expected welfare effects of targeted R&D subsidies using project-level data from Finland. We model the application and R&D investment decisions of firms and the subsidy-granting decision of the public agency in charge of the program. Our model and institutional environment allow us to identify different benefits and costs of the R&D subsidy program. We find that expected effects of subsidies are very heterogeneous and estimated application costs low on average. The social rate of return on targeted subsidies is 30 to 50, but spillover effects of subsidies are smaller than effects on firm profits.

Evaluating Innovation Policy: A Structural Treatment Effect Model of R&D Subsidies

This paper studies the welfare effects of R&D subsidies. We develop a model of continuous optimal treatment with outcome heterogeneity where the treatment outcome depends on applicant investment. The model takes into account heterogeneous application costs and identifies the treatment effect on the public agency running the programme. Under the assumption of a welfare-maximizing agency, we identify general equilibrium treatment effects. Applyiing our model to R&D project-level data we find substantial treatment effect heterogeneity. Agency-specific treatment effects are smaller than private treatment effects. We find that the rate of return on subsidies for the agency is 30-50%. Keywords: applications, effort, investment, R&D, selection, subsidies, treatment programme, treatment effects, welfare JEL classification numbers: 038, 031, L53, C31

Empirical research on discrete choice game theory models of entry: An illustration

Abstract We discuss the empirical implementation of discrete game theoretic models of firm entry. After presenting a simple model of entry that underlies much of existing empirical analysis, we discuss the major problems that must be tackled when empirically implementing theoretical models, and econometric methods used in the literature. Finally, we present results from a reduced form estimation of a sequential move entry game, using data from the UK hamburger market.

Returns to Inventors

A key input to inventive activity is human capital. Hence it is important to understand the monetary incentives of inventors. We estimate the effect of patented inventions on individual earnings by linking data on U.S. patents and their inventors to Finnish employer-employee data. Returns are heterogeneous: Inventors get a temporary reward of 3% of annual earnings for a patent grant and for highly-cited patents a longer-lasting premium of 30% in earnings three years later. Similar medium-term premia accrue to inventors who initially hold the patent rights, although they forego earnings at the time of the grant.

Anatomy of cartel contracts

We study cartel contracts using data on 18 contract clauses of 109 legal Finnish manufacturing cartels. One third of the clauses relate to raising profits; the others deal with instability through incentive compatibility, cartel organization, or external threats. Cartels use three main approaches to raise profits: Price, market allocation, and specialization. These appear to be substitutes. Choosing one has implications on how cartels deal with instability. Simplifying, we find that large cartels agree on prices, cartels in homogenous goods industries allocate markets, and small cartels avoid competition through specialization.

Politics and Procurement: Evidence from Cleaning Contracts

We study the effects of politics on public procurement in Swedish municipalities in 199098 using data on cleaning services. No procuring municipality committed to a standard auction format or to an ...

Asymmetric Information and the Market Structure of the Venture Capital Industry

In this paper we study a horizontally differentiated market for financial intermediation and develop a simple explanation for concentration in the financial intermediation industry. We show that under asymmetric information, if the demand for funds is not perfectly elastic, the heterogeneity of entrepreneurs in need of financing translates into a barrier to entry. That is, we do not need to resort to learning, weak property rights or exogenous costs of entry to generate this result.

Dynamics of R&D and investment: UK evidence

Abstract The dynamic relationship between R&D, investment and stock market value for 185 UK firms over 1984–1992 is analyzed. Investment Granger-causes R&D but not vice versa. R&D has an idiosyncratic shock and past R&D and investment explain only 1% of excess returns.