Innovation and Financing Structure

Author Name YANAGAWA Noriyuki  (Faculty Fellow)
Creation Date/NO. March 2007 07-J-004
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This paper explores the desirable structure of corporate finance or financing and what sort of organizational structure is important in promoting innovation. Technology is important in inducing innovation but it may appear that the issue of financing has no direct link with innovation. In reality, however, the way in which companies raise capital greatly influences the structure of corporate governance, and thus incentives for research and development (R&D). In promoting innovation, it is important to accumulate and utilize human capital. To achieve this end, financing schemes need to be designed in such a way to indirectly incentivize the accumulation of human capital. It is also important to design and implement an organizational structure that enables individuals to demonstrate leadership by accumulating and utilizing human capital. Furthermore, the importance of human capital accumulation on the part of financial institutions, as a provider of financial resources, will be stressed in the future. Liquiditization and securitization of assets must therefore be promoted.