Dynamics of Innovation and Risk
Language
en
Article de revue
This item was published in
Review of Financial Studies. 2015, vol. 28, n° 5, p. 1353 - 1380
Oxford University Press (OUP)
English Abstract
We study the dynamics of an innovative industry in which agents learn about the likelihood of negative shocks. Managers can exert risk prevention effort to mitigate the consequences of shocks. If no shock occurs, confidence ...Read more >
We study the dynamics of an innovative industry in which agents learn about the likelihood of negative shocks. Managers can exert risk prevention effort to mitigate the consequences of shocks. If no shock occurs, confidence improves, attracting managers to the innovative sector. But, when confidence becomes high, inefficient managers exerting low risk-prevention effort also enter. This stimulates growth, while reducing risk prevention. The longer the boom, the larger the losses if a shock occurs. Although these dynamics arise in the first-best, asymmetric information generates excessive entry of inefficient managers, earning informational rents, inflating the innovative sector, and increasing its vulnerabilityRead less <
English Keywords
Finance
Origin
Hal importedCollections