Journal Article

Innovation, Competition, and Investment Timing

Yrjö Koskinen and Joril Maeland

in The Review of Corporate Finance Studies

Volume 5, issue 2, pages 166-199
Published in print September 2016 | ISSN: 2046-9128
Published online March 2016 | e-ISSN: 2046-9136 | DOI: https://dx.doi.org/10.1093/rcfs/cfw002
Innovation, Competition, and Investment Timing

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  • Market Structure and Pricing
  • Information, Knowledge, and Uncertainy
  • Investment Banking
  • Corporate Governance
  • Technological Change; Research and Development

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In our model multiple innovators compete against each other by submitting investment proposals to an investor. The investor chooses the least expensive proposal and the timing of the investment. Innovators privately learn the cost of investing. The investor has to compensate the innovators for their reservation wages, but competition makes screening easier and helps to erode innovators’ informational rents. Consequently, competition leads to faster innovation, because the investor has less need to delay expensive investments. With an endogenous number of innovators investment timing becomes first best.

Received June 5, 2013; accepted February 26, 2016 by Editor Paolo Fulghieri.

Keywords: D44; D82; G24; G31; O31; O32

Journal Article.  10504 words.  Illustrated.

Subjects: Market Structure and Pricing ; Information, Knowledge, and Uncertainy ; Investment Banking ; Corporate Governance ; Technological Change; Research and Development

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