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Financial Architecture's Features of Innovative Companies

Student: Evdokimov Sergei

Supervisor: Irina Ivashkovskaya

Faculty: Faculty of Economic Sciences

Educational Programme: Strategic Corporate Finance (Master)

Final Grade: 9

Year of Graduation: 2018

Each company operates within the framework of interrelated structures — ownership, corporate governance mechanisms and capital structure. The particular combination of these three dimensions determines the financial architecture of the company. Innovative firms differ substantially by their business models from traditional types of businesses. Despite the growing body of literature on the challenges of knowledge economy to corporate structures and their innovative performance, still little is known about corporate financial architecture of these new types of firms. To address the lack of research in the interaction of key corporate structures and distinct features of innovative firms, we identify the robust financial architecture patterns of innovative companies and compare them with non-innovative manufacturing firms. Using agglomerative hierarchical clustering method, we study the financial architecture patterns on the sample of over 1,300 publicly traded US-based business enterprises, which are categorised as manufacturing companies. Based on OECD criteria, the sample is divided into innovative and non-innovative companies. First, we found up to seven robust financial architecture patterns of innovative companies including patterns: «owner-manager-controlled», «start-ups», «dominance of insider ownership», «diversified ownership», «dependent board», «classic mature companies» and «blue chip firms with solid CEO-duality». Second, we revealed differences between robust financial architecture types of innovative and non-innovative firms on a cluster-by-cluster basis. The following dissimilarities were observed: i) innovative companies are less leveraged than non-innovative firms; ii) CEO-duality is a significant differentiating characteristic only for innovative firms; iii) innovative companies have higher share of activist institutional investors. In addition, we demonstrated that various financial architecture patterns lead to different firm performance.

Full text (added May 22, 2018)

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