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Firms, Finance and Sustainable Transitions

The Financial Constraints of Eco-Innovation Companies

Edgardo Sica

This thought-provoking book introduces a financial economics perspective to the topic of eco-innovations and, more generally, sociotechnical transitions. It develops a model that illustrates how financial constraints can prevent the development of eco-innovations within companies and hinder the transition process towards a more sustainable regime. Edgardo Sica presents a review of the state of the art, as well as new data from original surveys aimed at testing the impact of financial constraints on eco-innovative decisions at radical and niche levels.
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Edgardo Sica

This chapter reports the findings achieved from an ad hoc survey which investigates the financial constraints of eco-innovative companies at niche level. In other words, it explores the way financial constraints may affect the niche readiness by hampering the development of radical EIs. In particular, readiness is measured in terms of (1) networking activity within the niche, (2) level of knowledge of niche actors and (3) expectations of actors about the future development of the niche. The survey was administrated to the companies operating in the anaerobic digestion and biogas niche, both in England and Italy. This niche represents an interesting case study since it takes simultaneously into account the most relevant domains that can actively contribute to the transition towards a more sustainable regime, that is, energy, food and mobility.

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Edgardo Sica

This chapter reports the results achieved from the implementation of a survey specifically designed to investigate the financial constraints of eco-innovative companies at regime level. Specifically, it analyses the extent to which financial constraints can prevent the creation of favourable conditions in the socio-technical regime by hampering the development and/or adoption of incremental EIs. The survey was administrated to a sample of English and Italian manufacturing companies. The comparative analysis between these two countries represents an interesting case study due to the opposing configuration of their FS in terms of patterns of industrial finance, corporate governance system, financial sector, predominant system of business coordination and organisation and legal framework.

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The Ecology of Tax Systems

Factors that Shape the Demand and Supply of Taxes

Vito Tanzi

This groundbreaking book analyzes how the ecology of taxation is fundamental for the success or failure of tax systems. It specifically focuses on the role of the ecological environment on taxation; the factors that determine the ecology of taxation; and how the ecology of taxation has changed and may continue to evolve. The implicit, important conclusion is that there are no permanent or universal optimal tax theories: all theories are related to this ecology.
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Eco-innovations and finance theory

The Financial Constraints of Eco-Innovation Companies

Edgardo Sica

Although the importance of finance for innovations has been recognised by Schumpeter since 1912, literature on EIs does not take into account the role of financial resources as a possible driver/barrier to the companies’ eco-innovative decisions. In this framework, this chapter discusses the relevance of finance for EIs. The chapter starts by analysing the capital structure of companies with particular reference to the financial options provided by the green finance to the eco-innovative enterprises. Then, it moves towards the analysis of the finance theory and the corresponding empirical findings, by focusing on two main bodies of literature. The first includes literature on capital structure and the theory of hierarchy of finance. The second focuses upon the determinants of companies’ financial constraints, with particular reference to the role of different financial systems.

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Edgardo Sica

This chapter presents a multilevel perspective model based on the theoretical setting of the evolutionary theory. The model tries to capture the complexity of EIs’ contribution to the transition from the current (unsustainable) regime to a green economy where EIs become the market standard. In this framework, the model identifies the role played by the financial constraints in hindering the eco-innovative decisions of companies. On the one hand, financial constraints may impede regime level companies from developing or adopting incremental EIs that would otherwise allow niche-level EIs to enter the dominant regime. On the other, financial constraints can affect the development of radical EIs at niche level, by negatively influencing the niches readiness. In this way, financial constraints delay the alignment process among socio-technical levels, jeopardising the transition towards a more sustainable regime.

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The drivers of eco-innovations

The Financial Constraints of Eco-Innovation Companies

Edgardo Sica

The main incentive for innovation activities in companies is generally given by the possibility of achieving higher market shares and more profits. In turn, this is affected by a number of internal-to-company drivers (for example, company size, cost-savings associated with the implementation of innovations and so on) and external-to-company drivers (for example, market characteristics and competitiveness level and so on). However, in the case of EIs, further eco-related external factors should be taken into account, such as the type and effectiveness of environmental policy adopted, the environmental consciousness of consumers and their related preference for environmentally friendly goods and services. This chapter reviews all these aspects discussing the existing theoretical and empirical knowledge about the main drivers of EIs.

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Defining eco-innovations: characteristics, typologies and socioeconomic approaches

The Financial Constraints of Eco-Innovation Companies

Edgardo Sica

‘Eco-Innovations’ (EIs) are a type of innovations that may contribute to reduce the environmental burden and to deal with specific problematic areas, such as greenhouse effects, loss of biodiversity, sustainable use of natural resources and so on. However, despite their relevance, EIs still represent a vague and unclear concept. The present chapter firstly clarifies the true meaning of EIs, by defining their characteristics and typologies. Then, it explores and contextualises roles and functions of EIs for sustainability in the framework of two contrasting approaches, namely the more traditional neoclassical literature on innovations and the new evolutionary studies on the techno-paradigm shifts.

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Conclusions

The Financial Constraints of Eco-Innovation Companies

Edgardo Sica

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Ekaterina Svetlova

In Chapter 2, financial decision-making is conceptualized as action-like decision-making and the idea of symmetrical ignorance is introduced. Both concepts provide the theoretical basis for the later empirical discussion. Also, both concepts point to the specific, not solely epistemic, nature of financial markets and suggest that the existing accounts of models and their use are insufficient as they particularly focus on scientific practices. In the chapter, financial models are discussed as instruments to guarantee investability and to create faith in markets. They help bridge symmetrical ignorance by participating in the diverse practices of decision-making and decision-selling. Financial models are considered the tools of formal calculation, story-telling, communication and theatrical performance.