Introduction of innovations during the 2007-8 financial crisis: US companies compared with universities

Financing innovation presents informational and control problems for the financier, and different solutions are used for funding of US companies and universities. In this paper we examine how funding characteristics influenced the change in innovation during the 2007-8 financial crisis for both. We extend prior theories of external financing’s effect on company performance during crises, firstly to university performance, and secondly to show the influence of time variation in aggregate funding. Empirical results are consistent with our theory: external dependence and asset intangibility had a limited effect on company innovation on entering the crisis, but increased university innovation. Overall, however, company patenting was more robust than university patenting, despite the out-performance being masked by respective portfolio characteristics.