Wharton Business Daily
How Financial Frictions Could Hinder Innovation
Jun 13, 2024
Wharton Assistant Professor Thomas Winberry discusses how financially constrained firms must balance investing in existing ideas versus pursuing new ones. The podcast explores the impact of financial frictions on growth, the relationship between frictions and policies, and the implications of reducing frictions for firm growth.
12:21
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Quick takeaways
- Firms face a trade-off between investing in existing ideas and pursuing new ones due to financial constraints.
- Financial frictions hinder firms from obtaining external financing promptly, impacting growth rates and economy positively.
Deep dives
Impact of Existing Projects versus New Ideas
Research findings suggest that existing projects are easier to fund than new ideas, impacting the investment landscape significantly. The growth of developed economies like the U.S. heavily relies on purposeful innovation decisions. Firms need financing for innovation activities like research and development, but must also consider investing in physical capital for scaling up production.
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