Microeconometric evidence of financing frictions and innovative activity
AbstractUsing 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.
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Bibliographic InfoPaper provided by United Nations University, Maastricht Economic and social Research and training centre on Innovation and Technology in its series UNU-MERIT Working Paper Series with number 062.
Date of creation: 2012
Date of revision:
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Web page: http://www.merit.unu.edu
Financial Constraints; Capital Structure; R&D; Innovation; Firm Characteristics; Panel Data; Correlated Random Effects; Control Function;
Other versions of this item:
- Amaresh K. Tiwari & Pierre Mohnen & Franz Palm & Sybrand Schim van der Loeff, 2012. "Microeconometric Evidence of Financing Frictions and Innovative Activity," CIRANO Working Papers 2012s-24, CIRANO.
- Tiwari, Amaresh K. & Mohnen, Pierre & Palm, Franz C. & Schim van der Loeff, Sybrand, 2012. "Microeconometric evidence of financing frictions and innovative activity," MERIT Working Papers 062, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
- G30 - Financial Economics - - Corporate Finance and Governance - - - General
- O30 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - General
- C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-09-30 (All new papers)
- NEP-CFN-2012-09-30 (Corporate Finance)
- NEP-INO-2012-09-30 (Innovation)
- NEP-KNM-2012-09-30 (Knowledge Management & Knowledge Economy)
- NEP-SBM-2012-09-30 (Small Business Management)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Biorn, Erik, 2004. "Regression systems for unbalanced panel data: a stepwise maximum likelihood procedure," Journal of Econometrics, Elsevier, vol. 122(2), pages 281-291, October.
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