Innovating firms pay more bribes than noninnovators across 25,000 firms in 57 countries. The difference is larger in countries with more bureaucratic regulation and weaker governance. Innovators that pay bribes do not receive better services and do not have greater propensity to engage in other illegal activities such as tax evasion. Thus, innovators are more likely to be victims of corruption than perpetrators. Our findings point to the challenges facing entrepreneurs in developing countries and are consistent with the view that rent seeking by government officials unlike private criminal activity is more likely to target innovators

This paper examines the role of local attitudes toward gambling on corporate innovative activity. Using a county’s Catholics-to-Protestants ratio as a proxy for local gambling preferences, we find that firms located in gambling-prone areas tend to undertake riskier projects, spend more on innovation, and experience greater innovative output. We contrast the local gambling effect with chief executive officer (CEO) overconfidence, another behavioral effect reported to influence innovation. We find that local gambling preferences are a stronger determinant of innovative activity, with CEO overconfidence being more relevant to innovation in areas where gambling attitudes are strong

We show that wrongful discharge laws—laws that protect employees against unjust dismissal—spur innovation and new firm creation. Wrongful discharge laws, particularly those that prohibit employers from acting in bad faith ex post, limit employers' ability to hold up innovating employees after the innovation is successful. By reducing the possibility of holdup, these laws enhance employees' innovative efforts and encourage firms to invest in risky but potentially mould-breaking projects. We develop a model and provide supporting empirical evidence of this effect using the staggered adoption of wrongful discharge laws across U.S. states

We show that wrongful discharge laws—laws that protect employees against unjust dismissal—spur innovation and new firm creation. Wrongful discharge laws, particularly those that prohibit employers from acting in bad faith ex post, limit employers' ability to hold up innovating employees after the innovation is successful. By reducing the possibility of holdup, these laws enhance employees'innovative efforts and encourage firms to invest in risky but potentially mould-breaking projects. We develop a model and provide supporting empirical evidence of this effect using the staggered adoption of wrongful discharge laws across U.S. states

We develop a theory to show how external and internal corporate governance mechanisms affect innovation. We predict a U-shaped relation between innovation and external takeover pressure, which arises from the interaction between expected takeover premia and private benefits of control. Using ex ante and ex post innovation measures, we find strong empirical support for the predicted relation. We exploit the variation in takeover pressure created by the passage of antitakeover laws across different states. Innovation is fostered either by an unhindered market for corporate control or by antitakeover laws that are severe enough to effectively deter takeovers

We examine how financial market development affects technological innovation. Using a large data set that includes 32 developed and emerging countries and a fixed effects identification strategy, we identify economic mechanisms through which the development of equity markets and credit markets affects technological innovation. We show that industries that are more dependent on external finance and that are more high-tech intensive exhibit a disproportionally higher innovation level in countries with better developed equity markets. However, the development of credit markets appears to discourage innovation in industries with these characteristics. Our paper provides new insights into the real effects of financial market development on the economy

The theoretical effects of labor regulations, such as employment protection legislation (EPL), on innovation is ambiguous. EPL increases job security, and the greater enforceability of job contracts may increase worker investment in innovative activity. But EPL increases firms' adjustment costs, which may lead to underinvestment in activities that are likely to require adjustment, including technologically advanced innovation. In this paper, we find empirical evidence that these effects are at work—in particular, a higher share of multinational enterprise innovative activity in countries with high EPL is technologically advanced

The increasingly large role played by financial intermediaries, such as venture capitalists and angels, in nurturing entrepreneurial firms and in promoting product market innovation has led to great research interest in the area of entrepreneurial finance and innovation. This paper introduces the special issue of the Review of Financial Studies dedicated to entrepreneurial finance and innovation and highlights some of the promising topics for future research in this area. The special issue combines papers presented at the June 2010 “Entrepreneurial Finance and Innovation (EFIC)” conference, which was jointly sponsored by the Kauffman Foundation and the Review of Financial Studies, with other related papers

The increasingly large role played by financial intermediaries, such as venture capitalists and angels, in nurturing entrepreneurial firms and in promoting product market innovation has led to great research interest in the area of entrepreneurial finance and innovation. This paper introduces the special issue of the Review of Financial Studies dedicated to entrepreneurial finance and innovation and highlights some of the promising topics for future research in this area. The special issue combines papers presented at the June 2010 "Entrepreneurial Finance and Innovation (EFIC)" conference, which was jointly sponsored by the Kauffman Foundation and the Review of Financial Studies, with other related papers

Based on a sample of venture capital (VC)-backed IPO firms, we examine whether tolerance for failure spurs corporate innovation. We develop a novel measure of VC investors' failure tolerance by examining their willingness to continue investing in underperforming ventures. We find that IPO firms backed by more failure-tolerant VC investors are significantly more innovative and VC failure tolerance is particularly important for ventures that are subject to high failure risk. We show that these results are not driven by endogenous matching between failure-tolerant VC firms and start-ups with high ex ante innovative potential. We also examine the determinants of the cross-sectional heterogeneity in a VC firm's failure tolerance. We find that both capital constraints and career concerns can negatively distort a VC firm's failure tolerance. Less experienced VC firms are more exposed to these distortions, making them less failure tolerant than are more established VC firms