The Positive Sum Strategy Harnessing Technology for Economic Growth (1986) / Chapter Skim
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The Role of Large Banks in Financing Innovation
The Role of Large Banks in Financing Innovation
Pages 453-466
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From page 453... ...
In the broadest sense, it lies in creating newfnancial techniques, or in innovation of financial technology. It is as innovators themselves that large financial institutions play their most decisive role irz suz'DortinQ irznovation among their client companies.
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From page 454... ...
In the broadest sense, it lies in creating, new financial techniques, or in innovation of financial technology. It is as innovators themselves that large financial institutions play their most decisive role in supporting innovation among Heir client companies.
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From page 455... ...
A recent study for Congress by Me Office of Technology Assessment described the scope of this influence: "The applications of advanced inforTnat~on and telecommunicahons technologies in systems for delivering financial services change the way those services are created, delivered, pnced, received, accepted and used. " ~ It is therefore not surprising that possibly Me most direct way in which financial institutions fund innovation is as purchasers and users of infonnation technology.
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From page 456... ...
Thus, to better understand He role of banks in financing innovation, it is useful to understand He role that banks and other financial institutions play in financing the total economy. Domestic financial institutions held total assets of over $6 tnilion in 1983.
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From page 457... ...
financial institutions play a somewhat limited role in financing American business, both as a percentage of total funding sources and in comparison with other major financial systems. Moreover, our experience indicates that the role of large banks in financing technological innovation appears to increase in importance with company size.
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From page 458... ...
While small in absolute terms, venture capital finance clearly has played a very important role in the development of new companies, and particularly in those involved in innovative technology. Large banks and other financial institutions play an important role in venture finance.
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From page 459... ...
BANKS AND THE EMERGING GROWTH COMPANY One of our colleagues describes the very different roles of bank lending and seed capital in this way: '`The venture capitalist finances ideas the banker finances sales." Once a company has begun to translate its products and services into sales revenue, banks can begin the process of evaluating the ongoing commercial viability of the enteIpnse. That analysis is not limited to the new product itself, but to the overall capabilities of the company: management, marketing, and finance.
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From page 460... ...
Through the development of increasingly complex financial problems in a competitive world, banks provide support to the growing company well beyond the simple prOVlSlOn OI nIlanCe. FINANCING INNOVATION IN THE ESTABLISHED COMPANY The most important role of large financial institutions probably lies in financing technological innovation in the large and established companies that represent such a significant portion of the total U.S.
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From page 461... ...
Financing development costs Rough increasingly innovative financial techniques is probably the key challenge faced by large financial institutions in supporting technological innovation. Indeed, it is arguable that innovative financial techniques have been instrumental in clearing He way for commercial development of some key technological applications.
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From page 463... ...
This large Eurocredit market has been supplemented In recent years by market developments, which clearly suggests the emergence of a single, global, integrated capital market. Eurobond borrowing, for example, was until recently a relatively small portion of the worId's capital markets reserved for public sector borrowers and He very best known international companies.
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From page 464... ...
CONCLUSIONS This chapter has outlined key aspects of die role of large financial institutions in supporting technological innovation. It is clear that these institutions support technological innovation in many ways: as users of technology, venture capitalists, equity underwriters, lenders, advisers and consultants, project financiers, and conduits to the international capital markets.
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From page 465... ...
This trend in public policy dovetails win much more fundamental forces at work in the world's financial markets. Infonnation technologies have broken Cough the traditional market barriers of geographic distance, special cartels, and exclusive market trading "floors " These technologies are bypassing cartel and regulatory segmentation of the financial markets and leading to integrated, competitive financial institutions.
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