Transaction Costs in Financing Knowledge-based Firms: Empirical Evidence from Iran’s Innovation and Prosperity Fund

Abstract

Transaction costs are critical in shaping financing accessibility and efficiency for knowledge-based companies. This study investigates the transaction costs associated with financing via Iran’s Innovation and Prosperity Fund. In order to better analyse the transaction cost dimensions of knowledge-based companies, after calculating the transaction cost, the factors affecting it can be investigated in the framework of econometric analysis. A multi-stage random sampling method was employed to extract a sample of 123 knowledge-based companies from nearly 2000 facilities granted by the fund, for in-depth interviews and analysis. Data from 123 companies reveals that documentation, multi-stage payments, and collateral requirements are primary cost drivers. On average, transaction costs constitute 3.33% of the borrowed amount, adding 15.66% to overall financing costs. Smaller loans face higher transaction costs, and delays in financing increase costs due to opportunity losses. Indirect costs, such as document preparation, make up a significant portion of expenses. Econometric modelling highlights the impact of loan size, payment structure, and delays on transaction costs. The study recommends measures to optimise the process, including streamlining documentation, reducing payment stages, implementing credit ratings to minimise collateral costs, and speeding up loan approvals, which could improve the fund's competitiveness and financial accessibility for knowledge-based firms.