T5: The Dynamics of Finance, Competition and Information Production

One of the main pillars of SAFE is to investigate the positive effects of financial systems on innovation, growth and welfare. This proposal aims to investigate the interrelation between finance and innovation and the role of competition therein, and to analyze the impact of competition and new market entrants on the information-production role of financial markets and their informational efficiency. Thereby, we also address the link between industrial organization and financial economics. By looking at the linkage between competition, innovation and finance from different angles and directions we aim to bridge various gaps between the finance and industrial organization literature. We plan to cover four different aspects in four subprojects. Within these subprojects, we aim to contribute to the literature by investigating firm dynamics of startups, analyzing the interaction between firms’ financial and product market decisions, quantifying the impact of competition on accuracy and bias of forecasts of financial analysts, and characterizing the effects of entry of new competitors on characteristics of secondary equity markets. Overall, we view this team project as a combination of individually original and topical contributions that fit together as an important research cluster investigating the “positive” aspect of a sustainable architecture in Europe (SAFE).