"Innovation, Entrepreneurship and Financial Market Cycles" by Josh Ler

This document first reviews the evidence concerning the relationship between innovation and entrepreneurship. It then turns to understanding the consequences of market cycles for these activities.



While hard data is difficult to find, the financial crisis appears to have had a substantial negative effect on investors’ willingness to finance innovative entrepreneurship. This dearth of capital is particularly worrisome in light of the widely recognised need for innovative ventures—the so-called "green shoots"— to reignite economic growth after the world-wide recession. A growing body of evidence suggests a strong relationship between entrepreneurship, innovation, and economic growth.
We look at the way that financial considerations impact the innovation investment decision, and innovation in entrepreneurial ventures specifically.

TABLE OF CONTENTS
1. Introduction: The financial crisis and innovation
1.a. Short summary of the crisis
1.b. Anecdotal accounts of impact on entrepreneurship and innovation
2. Entrepreneurship and innovation
2.a. Initial conjectures
2.b. Early work
2.c. Recent work
2.c.i. Incentives
2.c.ii. Spillovers of Knowledge
2.c.iii. Employee mobility
2.c.iv. Organisational structure
3. Market cycles’ impact on innovation and entrepreneurship
3.a. Why financial conditions might matter
3.a.i. The efficient markets baseline
3.a.ii. Complications
3.b. Cycles in entrepreneurial finance
3.b.i. A Simple Framework
3.b.ii. The impact of shifts
3.b.iii. Over-Reaction
3.c. Empirical evidence
3.c.i. Studies of capital constraints on innovation and entrepreneurship
3.c.ii. Analyses of cycles and their impact on innovative entrepreneurship
4. The impact of the current global crisis on this relationship
4.a. What we definitely know
4.b. More speculative thoughts
REFERENCES