臺大管理論叢第31卷第2期

136 The Impact of the Act for the Development of Biotech and New Pharmaceuticals Industry on Firm Innovation in Taiwan of the complications and long-term effort required (Aghion et al., 2013). Overall, the R&D underinvestment problem is derived from the agency problem of managers. Previous studies (Aghion et al., 2013; Bushee, 1998; Chang, Liang, and Wang, 2019) propose that institutional investors could alleviate the agency problem and thus ameliorate the problem of R&D underinvestment. Second, spillover theory proposes that a firm cannot appropriate all the returns from its R&D investments and accordingly has less incentive to invest in R&D at the socially optimal level. Arrow (1962) and Jones and Williams (1998) suggest that firms may underinvest in innovation because it is difficult to conceal all knowledge of innovation from competitors. The free rider problem (or the imperfect appropriability) of R&D allows competitors to take advantage of firms’ knowledge of R&D to reduce production costs or to increase profitability. Chen, Chen, Liang, and Wang (2013) further examine the outgoing spillover effect of R&D and discover that firms which are less able to appropriate their R&D benefits are more likely to underinvest in R&D. The protection of patent and intellectual property may help to eliminate the free rider problem of R&D investments. However, such protection is incomplete in the real world because of patent and intellectual property litigation (Bessen, Neuhäusler, Turner, and Williams, 2014). Third, the financial constraint theory argues that relative to other investments, the R&D investment is more affected by financial constraints because of its greater uncertainty and its higher information asymmetry. Li (2011) argues that when a firm cannot raise enough funds to conduct the required tests of R&D, it may suspend the R&D project. Thus, R&D intensive firms with financial constraints are more likely to cut R&D investments. Brown et al. (2012, 2017) and Hsu, Tian, and Xu (2014) further investigate the external financing for R&D investments because R&D intensive firms often easily exhaust internal financing due to their lack of tangible assets and highly asymmetric information. They argue that equity markets are more suitable for the innovative firms to finance their R&D investments because equity markets provide investors with upside returns without collateral requirements and allow feedback of valuable information about the prospects of innovative projects. By contrast, Hall (2002) states that debt finance is less suited for R&D investment because of the limited collateral value of intangible assets and the high probability of failure in R&D. Accordingly, the improvement of equity financing for R&D investments (i.e. reducing the financing constraints on R&D investments) helps to reduce the R&D underinvestment problems of innovative firms.

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