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The impact of financial constraints on innovation: evidence from French manufacturing firms

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  • Frédérique Savignac

    (CREST-LMI - Centre de Recherche en Economie et Statistique - Laboratoire de Microéconométrie, CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper examines the impact of financial constraints on innovation for established firms. We make use of a qualitative indicator of the existence of financial constraints based on firms' own assessment obtained thanks to a French specific survey. Thus, the existence of financial constraints for innovation is measured by a direct indicator whereas previous studies rely on proxies (like the cash-flow sensitivity) subject to interpretation problems. The descriptive analysis of balance sheet structures reveals that innovative firms without financial constraints have the best profile in terms of economic performances, financing structure and risk whereas non innovative firms facing financial constraints have the poorest profile. From the econometric point of view, the probabilities of implementing innovative projects and of facing financial constraints are simultaneously estimated by a recursive bivariate probit model to account for the endogeneity of the financial constraint variable. We then find that firms having innovative projects face financial constraints that significantly reduce the likelihood that they implement their innovative investment. The probability of facing financing constraints is explained by firms' ex ante financing structure and economic performances, by industry sector and it decreases with firms' size.

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  • Frédérique Savignac, 2006. "The impact of financial constraints on innovation: evidence from French manufacturing firms," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00115717, HAL.
    • Handle: RePEc:hal:cesptp:halshs-00115717
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00115717
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    More about this item

    Keywords

    recursive bivariate probit; financing constraints; innovation; contraintes financières; probit bivarié récursif;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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