R&D, Innovation and Liquidity Constraints
AbstractWe study the effect of financing constraints on the decision to do R&D and on the level of R&D investment using survey data and complete financial accounting data on a large number of Italian manufacturing SMEs from 2001 to 2003. We use a direct indicator of credit constraints and employ an econometric approach allowing for the existence of binding financing constraints to be endogenously determined. We find that there is a significantly negative effect on the probability to set up R&D activities due to the presence of financing constraints, ceteris paribus. We also find that ignoring the endogeneity of the financing constraints indicator and the sample selection originating from firms not interested in doing R&D induces a bias in the estimated effect, which turns out to be positive and significant. We find the same result when studying the effect of liquidity constraints on R&D spending and are able to show that its reduction of liquidity constraints is largely to be associated with the reduction in the likelihood to do R&D (the R&D participation decision), rather than with a reduced level of investment. Finally, but importantly, firms that are both young and small appear to have additional difficulties in obtaining financing - even after controlling for both size and age - and disply a higher probability of being subject to credit constraints, ceteris paribus.
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Bibliographic InfoPaper provided by KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy in its series KITeS Working Papers with number 030.
Length: 34 pages
Date of creation: May 2010
Date of revision: May 2010
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Find related papers by JEL classification:
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
- O31 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-11-06 (All new papers)
- NEP-ENT-2010-11-06 (Entrepreneurship)
- NEP-INO-2010-11-06 (Innovation)
- NEP-SBM-2010-11-06 (Small Business Management)
- NEP-TID-2010-11-06 (Technology & Industrial Dynamics)
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- Gabriele Pellegrino & Mark J. Maria Savona, 2013.
"Is money all? Financing versus knowledge and demand constraints to innovation,"
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- D'Este,Pablo & Rentocchini,Francesco & Vega Jurado,Jaider M., 2012. "The role of human capital in lowering barriers to engage in innovation: evidence from the Spanish innovation survey," INGENIO (CSIC-UPV) Working Paper Series 201206, INGENIO (CSIC-UPV), revised 03 Aug 2012.
- Kadri Männasoo & Jaanika Meriküll, 2011. "How do demand fluctations and credit constraints affect R&D? Evidence from Central, Southern and Eastern Europe," Bank of Estonia Working Papers wp2011-09, Bank of Estonia, revised 19 Jul 2011.
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