CC BY
122
УДК 336.01
Finance and innovation
HARTMUT HIRSCH-KREINSEN
Doctor, Professor of Dortmund Technical University Dortmund, Germany E-mail: [email protected]
Abstract: This paper addresses the relationship between technological innovation and finance. So far, Less has been written on the interdependencies between the dynamics of the financial market, patterns of corporate finance and governance on the one hand and company innovation strategies on the other hand. The paper takes up these open questions. It analyses the transformation process of the German industrial innovation system due to the dynamics of the international financial market in the last decades. In conclusion, some general insight into the relationship between finance and innovation beyond the German context will be provided. The paper is based on an extensive literature research in the fields of economic sociology and innovation studies, the analysis of the public debate on the prospects of the current economic development, and preliminary findings of an ongoing empirical research project. Keywords: technological innovation, finance, financial market, economic development.
Финансы и инновации
ХАРТМУНТ ХИРШ-КРАйНЗЕН
д-р, профессор Дортмундского технологического университета, Дортмунд, Германия E-mail: [email protected]
Аннотация. Данная статья рассматривает взаимодействие технологических инноваций и финансов. На текущий момент представлено недостаточно публикаций, посвященных взаимозависимостям динамики финансового рынка, моделей финансового и административного управления компанией, с одной стороны, с инновационными стратегиями компании - с другой. Данная работа раскрывает ранее не изученные аспекты вышеизложенной темы. Проанализирован процесс трансформации системы промышленных инноваций Германии ввиду динамики международного финансового рынка в разрезе последних десятилетий. В заключение дан общий обзор взаимодействия сфер финансов и инноваций, не ограничиваясь особенностями процесса непосредственно в Германии. Статья основана на обширном исследовании научной литературы в сфере экономической социологии и инноваций, анализе публичных обсуждений перспектив текущего экономического развития и предварительных выводах продолжающегося по настоящее время эмпирического научно-исследовательского проекта. ключевые слова: технологические инновации, финансы, финансовый рынок, экономическое развитие.
1. Introduction
This paper addresses the relationship between technological innovation and finance. The empirical focus is on the relationship between the dynamics financial market, the modes of corporate finance and the course of company innovation strategies. Therefore, it refers to central development factors of capitalist societies, namely the interdependence between the financial market and the courses of technological innovation. The relevance of these factors for societal and economic development had been already theoretically highlighted by
Schumpeter in his analysis of the dynamics of capitalism. However, this issue has currently been analysed only marginally in the social theory debate on the dynamics and transformation of capitalism as well as in innovation research (e. g. O'Sullivan, 2005; Tylecote and Visintin, 2008). Only a few studies concerning this issue were conducted with an international and historical comparative perspective. In particular, international comparative analysis provides some insights into current trends and future prospects of the divergent systems. William Lazonick (Lazonick and O'Sullivan, 1996; La-
zonick, 2003, 2007) delve into the connection between the (likewise) financial market conditions of the U.S. and the structural characteristics of innovative enterprises particularly with regard to innovations in high-tech sectors. This author explicitly formulated the hypothesis that the internationally more and more dominating American shareholder-oriented financial market conditions retard rather than promote innovations.
However, there is a lot of evidence that those macro level hypotheses should be adapted more closely to the different conditions and courses of technological innovation. This evidence points in particular to the situation of different economic sectors which is characterized by various needs and modes of financing innovation (Tylecote/Visintin, 2008: pp. 31). Furthermore, different systems of corporate governance and types of companies have to be taken into consideration which may be characterized by likewise different modes of financing innovation; e.g. the relations between listed companies and the financial market may be quite different compared to those of family owned companies (Hirsch-Kreinsen, 2011).
The following argumentation takes up these debates and open questions. The main empirical focus of the analysis is on the change processes of the German industrial innovation system during recent years. Germany can be regarded as a particularly interesting case for this issue because its financial market structures and the system of corporate governance have been subject to substantial transformation processes (see e.g. Streeck, 2009; Windolf, 2014). The paper is organized as follows: It starts with a brief summary of the various patterns of interdependencies between finance and innovation. Then, referring to the German situation the developmental dynamics of the relationship between finance and innovation in the course of the internationalisation of the financial markets will be analysed. The paper concludes with some general insights into the relationship between finance and innovation beyond the German context.
The following argumentation is based on extensive literature research in the fields of economic sociology and innovation studies, on the analysis of the public debate on the prospects of the current economic and technological development in Germany and preliminary findings from an ongoing research project on financial market and company
innovation strategies in Germany.1 Therefore, the paper does not present final research findings but rather puts reflections from research in progress up for discussion.
2. Relations between finance and innovation
The term innovation is — in Schumpeterian sense — taken to denote technological innovations, i.e the genesis, development and diffusion of new marketable products, services and techno-organisational processes. Well known characteristics of technological innovations are the uncertainty with regard to the attainable technical and economic success, the risks of the usually fairly unpredictable course of the innovation process with its ex ante almost incalculable intermediate steps and unexpectedly arising decision-making situations and, finally, the difficulty to predict innovation costs (e. g. Fager-berg, 2005). These features entail specific requirements regarding their financing: In a nutshell: "Innovation is an expensive process; significant resources must be expended to initiate, direct and sustain it. It is a process that takes time, which means that the resources that support it must be committed until the process is complete. Finally, its outcomes are uncertain so the returns to innovative investments are not assured." (O'Sullivan, 2005: p. 240) Furthermore, as economic theory stresses, there is often a high degree of information asymmetry between the financier and the innovator which may lead to opportunistic action on the side if the innovator and adverse risk selection on the side of the financiers. Because normally the innovator has a better understanding of the opportunities, risks and uncertainties of an innovation process than the external financier (Rammer, 2009). Therefore, according to Giovanni Dosi, the financier of innovation always needs "... some sort of heroic trust in unexplored opportunities." (Dosi, 1990: p. 307)
Due to different social-institutional conditions the financing problem of innovation is solved in different country and time-specific ways. To analyse this in a comparative perspective one can refer to the well -known differentiation between two types of innovation systems (see in particular Rajan and Zingales, 2003; Tylecote and Ramirez, 2006; Tylecote and Visintin, 2008):
1 See: http://www.finn-project.de/index.php?id=31.
2.1. insider-dominated system
The German innovation system with its sophisticated incremental innovations is seen to be linked to an institutional context of a system of networked corporate governance dominated by universal banks and industrial cross ownership (Streeck, 1991; 2009). In the literature on finance and innovation, this system is generally referred to as "insider-dominated" (Mayer, 2002; Tylecote and Visintin, 2008) or "relationship-based" (Rajan and Zingales, 2003). According to Tylecote and Visintin, this type comprised all non-English speaking countries until at least the 1990s most notably due to the concentrated ownership of debt and equity and a dominating consensus-seeking culture between the different groups involved in the governance of a company. Concerning the typical mode of financing, authors speak of "relational banking": Typical of this type is a high degree of enterprise-oriented commitment of the banks and external capital providers and their relatively detailed knowledge of the situation and the activities of the enterprises they finance; in other words, they show a "firm-specific understanding" (Tylecote and Visintin, 2008: p.83). Referring to innovation activities, lasting learning processes between the involved actors from inside and outside a company are characteristic for this system and also the fact that the role of external investors is based on "participation" and "voice" (Dosi, 1990). The funding of innovation is characterised by a broad spectrum of features:
On the one hand, a main feature of the German system is that external financing of innovation is less acceptable for the companies and it is less available than in other countries (Rammer, 2009). Particularly the owners of family-controlled firms very often refuse a real stock exchange listing of their companies for fear of loosing control. On the other hand, the dominant means of financing of firms and thus of innovations are external resources, namely the loan from the firm's bank. This holds true in particular for medium-sized and family-owned companies ("Mittelstand") because of their limited equity (Vieweg, 2001). Hence a specific form of economic rationality results: It is not in the interest of the lending banks that their debtors, i. e. the enterprises, pursue short-term strategies of profit maximisation and thus take risks regarding their long-term existence; if these are
avoided, the repayment of the loans and the profits of the creditor banks are assured.2
With regard to innovation processes, this implicates a strong and long-term commitment of external capital providers to an innovating company on the basis of a relatively exact knowledge of the processes that have to be financed. Consequently, innovation with a long-term perspective proceed incrementally along fairly established technological trajectories, as the accumulated skills of the involved actors and the well-oiled organisational routines in the context of the long-term oriented relations are prejudicial to radical innovations and their risks and uncertainties. In this regard, firms that work on radical innovation are at a disadvantage because, given these financing modalities, the availability of risk-oriented venture capital for such innovation strategies is limited (e.g. Caspar et al., 2009; for a critical perspective on this see Taylor, 2009).
2.1. outsider-dominated system
In contrast, the prominence of high-tech-oriented radical innovations, typical for the US innovation system, is seen in close conjunction with market-regulated financing conditions. The basis here is capital market financing, the central instrument is the share which goes hand in hand with a high degree of flexibility and willingness to take risks. Based on these institutional conditions a dominating financing segment can be identified. The main players of this financial market segment are pension funds, insurance companies, mutual funds and the "asset management houses", which manage investment portfolios. The objectives of the firms and their investors centre on a short-term profit maximisation and on an as high as possible share price. These organisations are likely to own shares of several firms of a sector, and thus to have a general understanding of the sector as a whole as a precondition for their investment decisions. Also private equity firms play an important role in this segment. They invest in large control-oriented equity stakes on behalf of other financial institutions such as pension funds (Tylecote and Ramirez, 2005: p. 12).
Generally, this mode of financing is characterised by a loose relationship between investors and individual enterprises; a few specialised long-term oriented private equity funds are the exception.
2 Translation by the author.
Successful corporate financing hinges upon the public proof of the profitability of the company activities. The basis for this are — frequently standardised — cost accounting methods which abstract from the concrete context of a company and its activities. Therefore this form of corporate financing and of corporate governance is labelled "outsiderdominated" system. Its "arms-length relationships" are also characterised by a high pressure for shareholder value (Tylecote and Visintin, 2008: pp. 92). With regard to innovation processes, this implicates a loose commitment of external capital providers to an innovating company on the basis of a low company-specific expertise. The strategies of the investors are seen as selection processes based on "entry" and "exit-mechanisms" (Dosi, 1990). Innovations in established firms therefore usually proceed with a short-term orientation, aim at rapid economic successes and develop the available technologies at a very slow pace. Evidence for this is the decades-long dominance of traditional manufacturing technologies in the U.S. and the non- advanced automotive technology of American automotive manufacturers (e.g. Hirsch-Kreinsen, 1992).
However, there is a significant prominence of high-tech oriented radical innovations in this innovation system. This situation can primarily be put down to the existence of a second, institutionalized large segment of the financial market for risk and innovation-oriented venture capital. This segment of the financial market plays an important role in financing high-risk innovation strategies fraught with uncertainties (Dosi, 1990). The providers of venture capital are characterized by their high willingness to take risks in conjunction with a detailed knowledge of the innovation project. Hence, venture capitalists expect to participate in company management as well as in finance and there is a close relationship between investor and the innovating company. In other words, the strategies of the capital providers are based on "voice-mechanisms" and less on "entry/exit-mechanisms" of pure selection (ibid.). Of course this segment is linked to the "outsider-dominated" — segment of corporate financing in specific ways: For one thing, venture capital normally finances the particularly risky early phases of an innovation which the majority of investors shun. For another thing, venture capitalists ultimately aim at selling their interest in firms with successful radical innovations at a high profit. A precondition for this are the market processes of an
"outsider-dominated" financial market as well as the possibilities to sell the shares to large established firms (cf. Rajan and Zingales, 2003).
3. Dynamics of the financial market
Recent research — in particular in the field of economic sociology — emphasises the fact that the boundaries between the different country-specific innovation systems have begun to blur since the 1990s due to the internationalisation of the financial markets (e.g. Deeg, 2009). It furthermore points out that the in anglophone countries domi-nanting forms of corporate financing are asserting themselves while the "insider-dominated" forms of corporate financing and of corporate governance are eroding. According to the research findings, this is especially true for Germany, where the dissolution of the traditional networked system of the "Deutschland AG" is very conspicuous. The researchers highlight that in Germany as in other European countries a process termed as "financializa-tion" of economic activities and company behaviour has taken place (e.g. Streeck, 2009; Windolf, 2014; Zwan, 2014). The main consequence is that networked system of long-term lending by relatively autonomous universal banks tends to be replaced by an internationally oriented system based on anglophone capital market and corporate financing norms, which leads to lasting changes in the system of corporate governance.
On the supply side of investors, a changing constellation of actors is discernible: First, mention must be made of the growing influence of new economic institutions and actors such as various forms of investment funds as well as analysts and rating agencies. Second, research findings point to the worldwide greatly increased importance of not publicly regulated international forms of capital allocation within the scope of various kinds of private equity funds. Third, changes in the structures and strategies of banks are emphasized by research. These result in the increasing importance of profit-oriented and short-term oriented investment banking at the expense of long-term oriented lending to firms. In this context, analysts and rating agencies play a key role for the investment decisions of the capital providers, as the investors expect an assessment of the risks and the future profitability of an investment from them. This change is accompanied by changed regulations of credit rating and financing modalities (so-called Basel-Regulations) which
are primarily driven by the evaluation of default risk on various forms of debt.
4. Development of the German industrial innovation system
The question arises in which way these changes in the financing conditions of a hitherto "insiderdominated" system like the German "stakeholder economy" influence the innovation strategies of the enterprises. The answer to this question cannot be deduced a priori. On the one hand the changes in financial market conditions may lead to constraints on innovation strategies. On the other hand the influence of new shareholder groups may open new innovation opportunities. Hence, it can be argued that because of the financial market dynamics the formerly relatively homogeneous German industrial innovation system shows a growing diversity of different innovation patterns.
4.1. Dominance of finance over innovation
a) constraints on the innovative capability of firms
A first innovation pattern is characterized by the increasing dominance of finance over innovation that leads to constraints on the innovation capabilities and strategies of enterprises. As aforementioned (Deutschmann, 2008; Lazonick, 2007), there is no sufficient stability of the financial means guaranteed nor is there strategic room for manoeuvre. Moreover, because of their lacking contextual knowledge, neither the dominant financial market players nor changing financing regulations and instruments are able to adequately assess the risks and uncertainties of technical innovations and their preconditions with regard to the corporate structure.
Empirically this situation is most likely to be encountered in the case of large listed firms with a pronounced financial market orientation. As aggregated data show, there has been a clear trend in large German corporations away from bank financing towards more market financing since the beginning of the 1990s (cf. Deeg, 2009). Therefore one can assume that massively increased, short-term oriented profitability criteria and expectations of external investors lead to an abandonment of innovation activities or at least to the curtailment of innovation perspectives and of the associated expenses. An empirical example for this trend are large pharmaceutical companies that have in the
past few years extensively reorganised their value added chains, in particular their research departments. The innovation activities of this industry are influenced by a lot of specific factors, in particular the governmental health policy. However, there are research findings pointing to the specific influences of financial market conditions (Briken and Kurz, 2006; Kädtler, 2009): For one thing, the innovation processes are streamlined and strictly controlled according to financial performance figures or other indicators in order to detect undesirable developments at an early stage and to reduce development times. For another thing, the linking of innovation processes in the field of pharmaceuticals to criteria of the financial market leads to a focus of their innovation strategies on products with particularly good prospects, blockbuster, i.e. patented key products with a high turnover and profit margin. Characteristics of these innovation dynamics are a marked rise in the overall R&D since the 1990s, the marked reduction of the development times and the massive broadening of the range of products (EFI, 2014). However, these dynamics go along with a continuous reduction of the in-house R&D expenditure and a marked rise in external R&D since the mid-1990s, whereby the innovation risk in particular regarding the use of new technologies is shifted to external suppliers (Jürgens and Sablowski, 2008).
The takeover of companies by private investment corporations such as private equity funds has similar consequences. The strategy of the corporations is directed at a loan-funded investment in companies, the utilization of the financial potentials of the taken-over company and a rapid exit at as high a sale value as possible — in a nutshell: "invest to sell" (Klier et al., 2009). According to the available literature (e.g. Kamp, 2007), short-term improvements in the efficiency and competitiveness of the enterprises can by all means be achieved by these company takeovers but long-term oriented strategies and investments in research and development are hardly possible anymore. This is shown by a whole range of examined taken-over companies, for instance by medium-sized companies from the capital goods industry (Lembke, 2008).
This restrictive situation for innovation projects also affects non-listed companies such as smaller and family-owned enterprises. This is due to the generally changed structures of the system of corporate financing and of granting of loans
(Basel — Regulations) with its risk-averse and intricate rating and evaluation procedures, which subject innovation projects to a more pronounced and systematic economic control than in the past (e.g. Belz and Warschat, 2005; Springler, 2007). According to available data, this applies in particular to enterprises from traditional sectors and small and medium-sized enterprises, which, due to limited own resources, to a large extent finance innovation activities with tied bank loans; thus in the years 2004-2006 around 30% of the companies from the food and furniture industries as well as from metal production and metalworking financed their innovation plans with loans (in addition to other sources of funding); around 21% of the mechanical engineering companies also availed themselves of bank loans (Rammer, 2009: 41).
An additional reason for the restrictive situation is the increasing application of international accounting and financial reporting standards which follow the principles of a stronger accountability towards external investors and are oriented towards the (listed) company value (Botzem et al., 2007; Deeg, 2009). This can have twofold consequences: For one thing, managers often strictly avoid investments in uncertain and risky innovation projects so as not to unnecessarily weigh down the balance sheets. For another thing, the growing cost pressure, the introduction of rationalisation-based forms of work organisation and of shorter work cycles in the course of ongoing innovation processes often lead to the already mentioned "good enough-solutions" and "pseudo solutions" (Grewer et al., 2007: p. 78).
b) New scope for innovation
However, the changed financial market conditions also lead to the emergence of new and extended scopes for innovation strategies. This second innovation pattern can be summarized as follows: Firstly, one has to mention investors such as industrially oriented private equity funds that pursue a long-term investment strategy and open up new scopes of action for increases in productivity and innovations (Achleitner et al., 2008). Secondly, venture capital that is geared to financing risky product innovations in high-tech sectors plays an important role in this context. Apart from the new economy boom of the second half of the 1990s, venture capital in its various forms plays a relatively subordinate role for the funding of innovations in Germa-
ny in comparison especially to the US (EFI, 2014). Moreover, the volume of venture capital dropped significantly after the new economy bubble burst at the beginning of the 2000s. While approx. 2.5 billion Euros of venture capital were invested in 2000, this sum only amounted to around 0.75 billion in 2003. For the then following years, however, researchers speak of a "modest revival" of this capital market segment (Deeg, 2009: p. 571). The investments in 2010 already amounted to more than 0,7 bn and in 2012 to about 0,6 bn Euro (EFI, 2014: p. 162). Therefore, the literature points to large funding shortfalls in the high-risk seed and start-up phase of innovation and business start-ups in Germany (e.g. Achleitner et al., 2010; EFI, 2014).
However, the German venture capital market causes structural changes in the innovation system because it opens new possibilities for financing innovations compared to the former system. This development is stimulated especially by innovation policy and public support for venture capital (Achleitner et al., 2010). Furthermore, the market for venture capital is a highly internationalized market segment and it offers companies funding possibilities on the international level to overcome the existing national restrictions (Klagge and Peter, 2009). In some high-tech sectors, therefore, venture capital plays an indispensable and vital role in Germany too. This applies in particular to the IT and biotechnology sectors as well as to medical engineering, communication technology, automation and control as well as feedback control systems. It is estimated that around a fifth to a quarter of the R&D expenditure in the biotechnology sector is financed by means of venture capital (KfW-Research, 2006: 121; Champenois et al., 2006).3 Additionally, so called "Business angels" represent an often underestimated sub-segment of the market for venture capital (Fryges et al., 2007). Furthermore, a segment of so called "Corporate Venture Capital" plays a more and more important role. Therewith large-scale enterprises fund innovation projects of other smaller companies of interest to them by means of specifically founded companies. The financing strategy has a long-term orientation and is normally coupled with consulting services for the innovating company. This form of financing can
3 This figure does not comprise the volume of foreign venture capital which plays an important role in the German biotechnology sector (KfW-Research, 2006: p. 121).
mainly be found in the pharmaceutical sector (FAZ, 2009).
Similar to the VC-segment in the American system (see above)4 a basic characteristic of these forms of financing of innovations are the often close personal ties between the innovating firms and the capital providers. On the basis of their detailed knowledge of the respective technology field, the investors often have close connections to the company they fund and take an active part in the business operations by means of various executive functions they hold within the company. Thus, the executive management is more closely controlled by the venture capital givers than is the case for other forms of external innovation financing (Rammer, 2009: p. 37). It is thus worth noting that a reconfiguration of the insider system is observable in the segment of venture capital. Its central characteristic is the close tie between individual innovating companies and financial market actors and the interest of the latter in short-term and high profits which they hope to realise due the influence they wield and their intimate knowledge of the technology requirements, risks and uncertainties of innovation processes. The consequences for innovation processes are mixed: On the one hand, these investors act as insider, they stimulate and push company innovation strategies to maximize their profits. On the other hand, this "informed capital" significantly promotes the innovation capabilities of the companies (DIW, 2005).
4.2. Stabilization of existing innovation patterns
In comparison, a third innovation pattern can be discerned which shows a significant path dependency and stabilisation of the traditional innovation pattern. It is characterized by only minor influences of finance over innovation, resp. loose coupling between the conditions of the financial market and company innovation strategies. This can be proved by available data on the funding methods of companies. As data of the German innovation survey of the years 2004-2006 show that industrial enterprises in Germany use various financing sources for innovations: According to the data, many innovating
4 Concerning the strong and coordinating influences of venture capitalists on innovation activities see Ferrary and Granovetter (2009) and their network-theory based findings of IT innovations in Silicon Valley.
enterprises make exclusive use of internal financial resources from ongoing business activities. Just as many enterprises combine internal with external financial sources; the exact figures are: 82% of all enterprises use internal financial sources, 41% of the enterprises make exclusive use of these while 41% of the enterprises combine them with external financial resources (Rammer, 2009: p. 41). On the one hand, this large share of self-financed investment is not a new phenomenon it was already of great importance in the past. On the other hand, there has been a marked rise in the share of internal financing since the 1990s (Deeg, 2009: p. 558).
In general, this means that enterprises are not often directly dependent on the increasingly restrictive financial market conditions to finance innovations but are at the most loosely coupled with them. This becomes even more apparent from the finding that research-intensive companies ("medium- and high-tech") in particular use internal financing sources, this strategy is pursued by about 95% of these enterprises (ibid.). Thus, the enterprises wish to secure room for manoeuvre for risky and far-reaching innovations. The enterprises also want to avoid a drain of relevant knowledge to potential competitors which are also owned by an external investor. Especially small and medium sized family owned enterprises pursue this strategy (Achleitner et al., 2010: p. 66).
It can also be assumed that under otherwise equal conditions, non-listed companies can secure room for manoeuvre vis-à-vis the changed financial market conditions because of their financing and ownership structures which are decoupled from the financial market. Quite large family-run companies are often cited as examples for this. These companies have sufficient own capital resources and their productivity is generally considered to be very high (e.g. Kamp, 2007). Shareholder loans are a typical form of financing in this case. According to the data, approx. 18% of all innovating enterprises draw on these to finance their innovations. But listed companies with a distinct financial market orientation can also try to maintain their autonomy and pursue innovation strategies independently, provided that their overall economic situation and their profitability are good.
5. Conclusion
If one recapitulates the described developments, the assumed growing diversity can be discerned in
the German innovation system. It is noticeable that the formerly relatively homogeneously structured stakeholder-dominated system is increasingly differentiating into various subsystems. These findings suggest some conceptual considerations on the interdependencies between financial market conditions, patterns of corporate financing and innovation progressions. As institutional analysis shows institutions, firms and emerging technologies co-evolve (Hollingsworth, 2000; Edquist, 2005). Without any doubt, the institutional conditions of the financial market play a key role for the ability of companies to follow long-term strategies as well as for their innovation activities. Therefore, the conditions of the financial market can be considered as independent and determining variables regarding the analysis of the course of technological innovations whereas the innovation strategies of enterprises have to be regarded as dependent variables. However, different patterns of interaction between the conditions of the financial market and the innovation strategies of companies have to be taken into consideration. These different patterns are determined by the following intervening variables: First, one has to point to the system of corporate governance which is characterized, as shown, by the distinction between de facto publicly-traded companies and family-run companies. This correlates with the extent to which the management is able to pursue autonomously financial market-oriented objectives. Second, one has to refer to the type of company and the respective innovation capabilities which determine to which extent innovation strategies can be pursued autonomously. In this context, the latitude for internal financing decoupled from the financial market is of special importance. As innovation literature shows (e.g. Teece and Pisano, 1994) the aspect of innovative capabilities is not at all trivial but highly relevant for the course of innovation strategies pursued by companies. Third, the characteristics of different technological fields and industrial sectors influence the given potentials for innovation, the possible type of innovations, may be incremental or radical, and their interlinked risks and uncertainties, costs and profit prospects. As aforementioned, there are significant differences between various industrial sectors, e. g. between old traditional sectors and new high-tech sectors. In other words, the conditions of different sectors define the financing
requirements and needs for innovation strategies. To sum up, the relationship between financial market, i.e. the changing institutional conditions of corporate finance and firm strategies can by no means be described as unidirectional deterministic. Rather, the assumption is the more plausible that company innovation strategies are the result of the influence of institutional structures on company strategies on the one hand and autonomous corporate strategies on the other hand.
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