Finance, Innovation and the Value of the Firm

In this paper, we will consider the firm as a “system”, where knowledge becomes the crucial factor for a more realistic description of the internal workings of the black box, including the complexity of technology and the productive structure. From this framework that permits a better assessment of the productive and organizational capabilities of the firm with internal and external indicators, we try to make suggestions for a new financial approach, integrating some relevant variables into a model of incomplete contracts. We will present a path-dependent model applying this framework to debt financing, with the target of a more efficient project selection by a financial intermediary and value creation for the economic system in which the firm is embedded. The model allows for a state-contingent contracting between firms and financiers, resulting in an incentive for renegotiation (instead of credit rationing) in case of unexpected shocks in the economy.