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What drives innovation? The role of regulation in the capital, banking and goods markets

14th National Competition for Economic Research Grants

Industrial economics and regulation

Senior Researcher : Anna Toldrà Simats

Research Centre or Institution : Universidad Carlos III de Madrid.


Innovation is a decisive factor in the competitive advantages of companies, as well as an essential ingredient in economic growth. The recent financial crisis and the stagnation of production and job creation in developed countries have given rise to an intense debate that has revealed the need to promote growth models based on an increase in innovation. The authorities of the European Union, the United States and China, among others, have redoubled their financial efforts in the implementation of measures to foster R&D+I. At the same time, the increase in resources dedicated to the funding of innovation has reopened the discussion on the factors determining innovation, as well as debates on the formulas to channel resources towards innovative activities efficiently.

Research into the factors and effects of innovation in companies has played a central role in the fields of company organisation, the industrial economy and economic growth over the last two decades. A considerable part of the research in this field has shown the importance of the development of the financial system for investment in innovation. However, there are very few papers studying the impact of regulating the capital market and the banking system on companies' incentives to implement innovative projects. Likewise, the literature dedicated to analysing the impact of competition in the goods market on business innovation is still in its infancy.

The aim of this project is to study the impact of certain regulatory measures in the capital, banking and goods markets on companies' innovation investment decisions. With this aim, we will structure the project around three main spheres of research:

  1. Securities markets and business innovation. In this part, we will analyse the role of financial analysts in the innovation decisions of large companies. In particular, we will use a regulatory change that occurred in the United States in 2000 (Regulation Fair Disclosure), as well as changes in the companies of financial analysts, to establish the effect of analysts' supervisory activity on company executives in the adoption of different innovation policies, motivated by the differential impact of different alternatives on the value of companies' shares in the short term.
  2. Evaluation of credit risk and funding of innovation. In this section, we will analyse the impact of the proliferation of automated credit-risk evaluation systems on opportunities for the funding of innovation. In particular, we will analyse the possible effects of the replacement of evaluation systems based on intangible (soft) information by algorithm models based on quantifiable (hard) information on the funding of innovative projects which, by their very nature, are not susceptible to standardisation.
  3. Protectionism and incentives to innovation. In this section, we will analyse the impact of protectionism on innovation. In particular, we will use significant changes in the tariff structure in order to establish the impact of the degree of protection from international competition on the adoption of innovative policies in companies.
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