INTERRELATIONSHIP BETWEEN INNOVATION (PATENTING STRATEGY) AND FINANCING BEHAVIOR:AN EMPIRICAL ANALYSIS OF JAPANESE FIRMS

イノベーション(特許戦略)とファイナンシングの相互関係 : 日本企業の実証分析

INTERRELATIONSHIP BETWEEN INNOVATION (PATENTING STRATEGY) AND FINANCING BEHAVIOR:AN EMPIRICAL ANALYSIS OF JAPANESE FIRMS

Degree Grantors Yamaguchi University

In the dynamic global business landscape, finance and innovation stand as the twin pillars of corporate success. Both finance and innovation are vital for a company's long-term viability, demanding a harmonious interplay between prudent financial management and a culture that fosters innovation. Research in the field examining the relationship between a firm's finance and innovation is rapidly growing, offering profound insights into the dynamics shaping organizational success. While many empirical studies traditionally presumed that financial support drives innovative efforts, alternative perspectives support the reverse causation hypothesis, suggesting that innovation can stimulate financial performance. The current corporate management research often takes a segmented approach, focusing on either the signaling effect of innovation on financial performance or the influence of finance on innovation performance. While insightful, this segmented approach resembles examining separate puzzle pieces without considering the whole picture.
We contend that finance and innovation are mutually interdependent, influencing each other. Our study uniquely explores both dimensions, investigating how financial resources stimulate innovation, and how innovation, primarily represented by patents, attracts investors and secures financial support. Focusing on Japanese corporations, our research provides a distinctive perspective due to Japan's diverse business landscape, strong patent system, and commitment to innovation. Japan's risk-averse market and global competition highlight the importance of innovation and the role of patents as signals for economic growth.
The first study scrutinizes the intricate relationship between financial resources and firms' innovation outputs, exploring the influence of various financing sources, internal and external, inspired by the Pecking Order Theory. It involves a sample of 113 Japanese manufacturing firms listed on the JASDAQ market, using patent-based metrics to gauge technological innovation. The study highlights the crucial roles played by both internal and external financial resources in driving innovation outputs. Firms demonstrate a strong preference for self-generated financing, particularly internal funding. Additionally, the research unveils the complementary impact of debt financing, especially when internal resources are depleted, aligning with the Pecking Order Theory's risk principles.
In our second study, we explore the reverse causation between innovation and finance, particularly during initial public offerings (IPOs). IPOs are pivotal, as they provide capital for growth and enhance a firm's reputation. However, information asymmetry poses a challenge, leading investors to rely on quality signals. We hypothesize that patents, as a proxy for innovation, mitigate information asymmetry because their information is verifiable, observable, and entails maintenance costs. Thus, a company with numerous patents before an IPO is likely to gain investor trust, leading to a more successful IPO. We analyze 338 newly listed Japanese firms across various industries, finding robust positive correlations between pre-IPO patent applications and IPO financial performance. This contribution enriches the literature on the impact of patents on IPO performance and illuminates the broader influence of innovation on finance.
The third study delves into the dynamics of patent signaling within IPO firms, distinguishing between high-tech and low-tech sectors. High-tech firms often face more information asymmetry, with less transparency in R&D and patent disclosures, making them riskier for investors. Low- tech firms, with valuable patents and balanced resource allocation, are more accessible to investors. This raises the question of whether high-tech firms are less successful in using patent signals to raise total capital during the IPO process, as previous research has mainly focused on high-tech firms in technology-intensive markets. While prior studies often grouped all IPOs together or concentrated on specific industries, our study adds fresh insights to the entrepreneurship and innovation landscape by asserting that patents exert a more substantial influence on IPO success for low-tech companies in comparison to their high-tech counterparts. This observation underscores the necessity for an in-depth exploration of the patent signaling mechanism in IPOs, especially for low-tech firms characterized by simpler innovation portfolios and tangible assets appealing to risk-averse investors.
Overall, our dissertation offers a comprehensive exploration of the interplay between finance and innovation in Japanese corporations, providing nuanced insights into the implications of this symbiotic relationship for businesses, policymakers, and scholars worldwide.

Creators LE THUY NGOC AN