Abstract
Financing of knowledge-based enterprises (KBEs) most commonly involves equity financing. The concept of capital cost is thus a key factor in the financing of KBEs. Capital cost, which is also the rate of return required by investors to commit funds to a project, directly influences the value placed on shares, and consequently the extent of control that the promoter must surrender. It is also clear that capital is a vital resource for technology firms. High financing costs will lessen the competitiveness of these firms and their ability to undertake new projects (Pecaut, 1993). Further, in the context of economic policy, the notion of capital cost1 is vital because of its link to business competitiveness (Baldwin, 1986). In a 1992 report, the Canada Consulting Group (CCG) argues that the cost of capital in Canada is abnormally high, and concludes, “We have a high cost of capital... many of our companies can no longer carry that burden because it does not allow them to grow, diversify and invest to stay competitive. The only option for these firms, should they continue to bear this yoke of high capital cost, is to shrink, limit their product and market development, and disinvest. This problem experienced at the individual company level translates into disaster for the economy as a whole” (p. I-3). According to CCG, the problem is far more serious among knowledge-based firms, which require major research and development (R&D) investments, and hence more capital.
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Carpentier, C., L’Her, JF., Suret, JM. (2001). The Cost of Capital for Knowledge-Based Enterprises in Canada. In: Lefebvre, L.A., Lefebvre, É., Mohnen, P. (eds) Doing Business in the Knowledge-Based Economy. Springer, Boston, MA. https://doi.org/10.1007/978-1-4615-1587-6_8
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