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This highly policy relevant article explores theories behind the neoclassical approach to innovation finance taking which assume that capital markets function efficiently and the structural co-evolutionary approach that emphasizes social mechanism to influence financiers behavior. On the basis of the analysis of the UK electricity market reform and renewable energy finance the authors propose a theoretical lens that takes into account planetary boundaries. The adaptive market hypothesis states that the investment environment together with investors’ behavior can change over time implicating that behavioral and structural conditions work in financial markets.
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Hall, S., Foxon, T.J., Bolton, R., Investing in low-carbon transitions: energy finance as an adaptive market. Clim Policy, 2015, 1–19 This highly policy relevant article explores theories behind the neoclassical approach to innovation finance taking which assume that capital markets function efficiently and the structural co-evolutionary approach that emphasizes social mechanism to influence financiers behavior. On the basis of the analysis of the UK electricity market reform and renewable energy finance the authors propose a theoretical lens that takes into account planetary boundaries. The adaptive market hypothesis states that the investment environment together with investors’ behavior can change over time implicating that behavioral and structural conditions work in financial markets.
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In this paper, the authors model the necessary large-scale deployment of low-carbon technologies. Next to economic factors hindering the adoption, the analysis points to institutional, behavioral and social factors that relate to both the uncertainty in climate policy as well as technology inherent characteristics. Technological lock-in, network externalities, high upfront investments, uncertainty and policy risk are highlighted. Even without major delays in policy implementation, the diffusion of low-carbon technologies might be hindered, especially if the technologies are interdependent. For some technologies such as CCS and renewables the constraints are more costly than for others (e.g. nuclear and bioenergy).
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Iyer, G., Hultman, N., Eom, J., McJeon, H., Patel, P., Clarke, L., Diffusion of low-carbon technologies and the feasibility of long-term climate targets. Technol Forecast Soc Change 90 (2015), 103–118 In this paper, the authors model the necessary large-scale deployment of low-carbon technologies. Next to economic factors hindering the adoption, the analysis points to institutional, behavioral and social factors that relate to both the uncertainty in climate policy as well as technology inherent characteristics. Technological lock-in, network externalities, high upfront investments, uncertainty and policy risk are highlighted. Even without major delays in policy implementation, the diffusion of low-carbon technologies might be hindered, especially if the technologies are interdependent. For some technologies such as CCS and renewables the constraints are more costly than for others (e.g. nuclear and bioenergy).
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Mobilizing private finance for low-carbon innovation — a systematic review of barriers and solutions
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This article is one of the first to systematically integrate the consequences of barriers to low-carbon innovation for innovation financing along the innovation cycle. Drawing from the innovation studies and entrepreneurial/innovation finance literatures the author emphasizes that technological, economic, institutional and political barriers have the most pronounced effect on investment. Policy makers possess a variety of instruments to address the barriers ranging from cutting fossil fuel (R&D) subsidies, leveling the institutional playing field and making risks of high-carbon and low-carbon technologies transparent to providing a consistent but adaptive long-term transition strategy.
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Polzin, F., Mobilizing private finance for low-carbon innovation — a systematic review of barriers and solutions. Renew Sustain Energy Rev 77 (2017), 525–535 This article is one of the first to systematically integrate the consequences of barriers to low-carbon innovation for innovation financing along the innovation cycle. Drawing from the innovation studies and entrepreneurial/innovation finance literatures the author emphasizes that technological, economic, institutional and political barriers have the most pronounced effect on investment. Policy makers possess a variety of instruments to address the barriers ranging from cutting fossil fuel (R&D) subsidies, leveling the institutional playing field and making risks of high-carbon and low-carbon technologies transparent to providing a consistent but adaptive long-term transition strategy.
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Negro, S.O., Alkemade, F., Hekkert, M.P., Why does renewable energy diffuse so slowly? A review of innovation system problems. Renew Sustain Energy Rev 16 (2012), 3836–3846.
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The authors show the early-stage finance gap specifically for innovative SMEs in the environmental sector using data from 330 firms. In this seminal study in the green tech sector, they argue that banks but also government support schemes discriminate SMEs that develop nascent technologies and venture capitalists fill this gap only to a very limited extend. Retained profits are hence the only way to finance these activities.
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Demirel, P., Parris, S., Access to finance for innovators in the UK's environmental sector. Technol Anal Strateg Manag 27 (2015), 782–808 The authors show the early-stage finance gap specifically for innovative SMEs in the environmental sector using data from 330 firms. In this seminal study in the green tech sector, they argue that banks but also government support schemes discriminate SMEs that develop nascent technologies and venture capitalists fill this gap only to a very limited extend. Retained profits are hence the only way to finance these activities.
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Demirel, P.1
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Mazzucato, M., The Entrepreneurial State: Debunking Public vs. Private Sector Myths. 2013, Anthem Press.
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In this paper, the similarity of loan portfolio in the Japanese banking system over the last 20 years is examined. The author finds that although overall similarity has decreased the banking system has become more concentrated and the largest banks have indeed become more similar. He concludes that the findings are likely to hold for other bank-based financial system such as Germany or the Netherlands.
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Fricke, D., Has the banking system become more homogeneous? Evidence from banks’ loan portfolios. Econ Lett 142 (2016), 45–48 In this paper, the similarity of loan portfolio in the Japanese banking system over the last 20 years is examined. The author finds that although overall similarity has decreased the banking system has become more concentrated and the largest banks have indeed become more similar. He concludes that the findings are likely to hold for other bank-based financial system such as Germany or the Netherlands.
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This article looks at the origins of financial instability that led to the past financial crises and impact financing the real economy. On the basis of experimental evidence in constructed asset markets, the authors highlight that male and female markets have comparable volatility, however confidence and risk preference (male attributes) drive financial instability. Hence reducing male domination and creating mixed-gender markets contribute to stability. Overall higher cognitive skills are associated with reduced price volatility.
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Cueva, C., Rustichini, A., Is financial instability male-driven? Gender and cognitive skills in experimental asset markets. J Econ Behav Organ 119 (2015), 330–344 This article looks at the origins of financial instability that led to the past financial crises and impact financing the real economy. On the basis of experimental evidence in constructed asset markets, the authors highlight that male and female markets have comparable volatility, however confidence and risk preference (male attributes) drive financial instability. Hence reducing male domination and creating mixed-gender markets contribute to stability. Overall higher cognitive skills are associated with reduced price volatility.
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Migendt, M., Polzin, F., Schock, F., Täube, F.A., von Flotow, P., Beyond venture capital: an exploratory study of the finance-innovation-policy nexus in cleantech [Internet]. Ind Corp Change, 2017, 10.1093/icc/dtx014 This article builds theory around unintended consequences of financial market regulation after the financial crisis for the financing of innovative cleantech companies. On the basis of 64 semi-structured interviews in the US and Germany the authors shed light on mechanisms of demand and supply for venture capital (VC) and private equity (PE) along the innovation-finance-value chain. Institutional investors emerge as critical players, particularly negatively affected by financial market regulation that restricts their possibilities to investment in risky asset classes such as VC/PE.
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Block, J.H., Colombo, M.G., Cumming, D.J., Vismara, S., New players in entrepreneurial finance and why they are there. Small Bus Econ, 2017, 10.1007/s11187-016-9826-6 The authors provide a state-of-the-art overview about new actors in financial markets, the antecedents of their emergence and their peculiarities with regard to financing entrepreneurship and innovation. The authors compare nature of the capital (debt or equity), investment approach, goal and targets. They highlight the emergence of disintermediated players such as crowdfunding in addition to ‘classical’ entrepreneurial financiers such as VC and business angels. However the literature is biased towards these, neglecting other players such as family offices.
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This research article provides the first cross-country account of drivers and barriers to venture capital investing in the cleantech sector from 1996 to 2010. Key drivers for this phenomenon include in descending order of importance: Media attention, rising oil prices and formal (e.g. regulatory quality and government effectiveness) and informal institutions. Uncertainty avoidance on the other hand represents a significant barrier, hence this need to be addressed in order to mobilize more private finance for cleantech.
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Cumming, D., Henriques, I., Sadorsky, P., ‘Cleantech’ venture capital around the world. Int Rev Financ Anal 44 (2016), 86–97 This research article provides the first cross-country account of drivers and barriers to venture capital investing in the cleantech sector from 1996 to 2010. Key drivers for this phenomenon include in descending order of importance: Media attention, rising oil prices and formal (e.g. regulatory quality and government effectiveness) and informal institutions. Uncertainty avoidance on the other hand represents a significant barrier, hence this need to be addressed in order to mobilize more private finance for cleantech.
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This paper starts the discussion about new forms of entrepreneurial finance that increase diversity in the financing landscape for start-ups. They establish an analytical framework for these new alternatives consisting of sources and types of capital, demand for capital (entrepreneurs perspective), resulting ownership and governance structures of the ventures as well as outcomes of the investment process.
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Bruton, G., Khavul, S., Siegel, D., Wright, M., New financial alternatives in seeding entrepreneurship: microfinance, crowdfunding, and peer-to-peer innovations. Entrep Theory Pract 39 (2015), 9–26 This paper starts the discussion about new forms of entrepreneurial finance that increase diversity in the financing landscape for start-ups. They establish an analytical framework for these new alternatives consisting of sources and types of capital, demand for capital (entrepreneurs perspective), resulting ownership and governance structures of the ventures as well as outcomes of the investment process.
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Etzion, D., Gehman, J., Ferraro, F., Avidan, M., Unleashing sustainability transformations through robust action. J Clean Prod 140:Pt 1 (2017), 167–178 This recent piece contributes to the discussion of how to accelerate the transition towards a green economy. On the basis of the case-study analysis of wind power, sustainability reporting and microcredit, the authors argue that instead of long-term visioning, planning and other management tools, robust action is appropriate to solving grand challenges such as climate change. Robust action consists of ‘leaders’ (organizations or individuals) that despite limited formal authority are able to leverage networks and actors to spur decentralized innovation.
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Cumming, D.J., Leboeuf, G., Schwienbacher, A., Crowdfunding cleantech. Energy Econ 65 (2017), 292–303 This paper presents a first analysis of cleantech crowdfunding, thereby providing insights on the financing of new alternative energy technologies by enabling inferences from large pools of small investors. It provides large sample evidence from 91 countries around the world that cleantech crowdfunding is more common when oil prices are rising, and more common in countries with low levels of individualism and uncertainty avoidance. The evidence is consistent with the view that while alternative energies are viewed as being more risky and investors face greater information asymmetries relative to other types of investment projects, there are mechanisms for entrepreneurs to mitigate these information problems and be at least as successful in cleantech crowdfunding markets.
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Criscuolo, C., Menon, C., Environmental policies and risk finance in the green sector: cross-country evidence. Energy Policy 83 (2015), 38–56 The study provides an important link between the policies supporting green technologies and early-stage venture capital investments looking at 29 countries over a five-year period (2005–2010). The authors show both supply-push policies such as R&D support as well as demand-pull measures such as long-term feed-in tariff programs correspond to the demand for long-term stable policy support systems to mobilize private early-stage investments for green tech. A policy mix including these two elements is thus advisable according to the researchers.
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Campiglio, E., Beyond carbon pricing: the role of banking and monetary policy in financing the transition to a low-carbon economy. Ecol Econ 121 (2016), 220–230 This unique paper examines the possible role of banks, banking regulation and monetary policy in a transition towards a sustainable economy. The author argues that in addition to fixing market and system failures surrounding low-carbon innovation, more direct instruments to mobilize private finance such as expanding credit creation towards green technologies through green reserve requirements as well as state investments banks are needed to fill the investment gap.
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