This paper evaluates the causal effect of issuing equities on the probability that a firm engages in R&D activity. Equity is a better source of external finance than debt for innovation. It does not require collateral, does not exacerbate moral hazard problems connected with the substitution of...

Small firms encounter difficulties in collecting external finance due to greater information problems. For small innovative firms, whose activity is more difficult to evaluate, the cost of external finance could be even higher. This paper aims to shed light on special features in financial...