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Microeconometric Evidence of Financing Frictions and Innovative Activity

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  • Amaresh K. Tiwari
  • Pierre Mohnen

    ()

  • Franz Palm
  • Sybrand Schim van der Loeff

Abstract

Using a unique panel data of Dutch innovation and financial variables we empirically investigate how financing and innovation vary across firm characteristics. The study also tries to gauge the extent of market failure due to the presence of financing frictions. Our main findings can be summarized as follows. First, when firms face endogenous financial constraints, debt financing and innovation choices are not independent of firm characteristics such as age, size, and existing leverage. In the absence of financial constraints, however, firms, almost uniformly across firm characteristics, become less inclined – as compared to firms facing constraints - to engage in innovative activity by raising debt. Second, small, young, highly leveraged, and firms with lower collateralizable assets are more likely to be financially constrained. Third, large, young, and low leveraged firms are more likely to be innovators. Fourth, financial constraints adversely affect a firm’s R&D intensity. Fifth, smaller and younger firms are more R&D intensive. A new estimator, that combines the method of “Correlated Random Effects” and “Control Function” to account for the endogeneity of regressors in a structural equations model, is developed. Nous utilisons une base de données de panel néerlandaise assez originale pour examiner comment les décisions d’innovation et de financement varient selon les caractéristiques des entreprises. Nous examinons en particulier dans quelle mesure il y a une faille de marché due aux besoins de financement de l’innovation. En résumé, nous aboutissons aux résultats suivants. Premièrement, les entreprises soumises à des contraintes financières font leurs choix de financement et d’innovation en fonction de leur âge, de leur taille et de leur degré d’endettement. Sans contraintes de financement, les enterprises sont moins portées à innover en s’endettant, quelles que soient leurs caractéristiques. Deuxièmement, ont tendance à être contraintes financièrement les enterprises jeunes, petites, avec un rapport dettes/fonds propres élevé et peu d’avoirs collatérables. Troisièmement, les entreprises jeunes, grandes et avec un faible rapport dettes/fonds propres ont plus de chances d’être innovantes. Quatrièmement, les contraintes de financement réduisent l’intensité de R-D. Cinquièmement, ce sont les entreprises petites et jeunes qui sont plus intenses en R-D. Pour estimer notre modèle, nous développons un nouvel estimateur qui combine les méthodes des effets aléatoires corrélés et des fonctions de contrôle pour tenir compte de l’endogénéité des régresseurs dans un modèle structurel d’équations simultanées.

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Paper provided by CIRANO in its series CIRANO Working Papers with number 2012s-24.

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Date of creation: 01 Sep 2012
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Handle: RePEc:cir:cirwor:2012s-24

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Keywords: Financial Constraints; Capital Structure; R&D; Innovation; Firm Dynamics; Market Failure; Panel Data; Correlated Random Effects; Control Function; Expected ´a Posteriori; financières; structure de capital; R-D; innovation; dynamique de firmes; failles de marché; données panel; effets aléatoires corrélés; fonctions de contrôle; attentes a posteriori.;

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