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Financial constraints and the failure of innovation projects

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  • Agustí Segarra

    ()
    (Universitat Rovira i Virgili & CREIP)

  • José García-Quevedo

    ()
    (Universitat de Barcelona & IEB)

  • Mercedes Teruel

    ()
    (Universitat Rovira i Virgili & CREIP)

Abstract

Theoretical and empirical approaches have stressed the existence of financial constraints in innovative activities of firms. This paper analyses the role of financial obstacles on the likelihood of abandoning an innovation project. Although a large number of innovation projects are abandoned before their completion, the empirical evidence has focused on the determinants of innovation while failed projects have received little attention. Our analysis differentiates between internal and external barriers on the probability of abandoning a project and we examine whether the effects are different depending on the stage of the innovation process. In the empirical analysis carried out for a panel data of potential innovative Spanish firms for the period 2004-2010, we use a bivariate probit model to take into account the simultaneity of financial constraints and the decision to abandon an innovation project. Our results show that financial constraints most affect the probability of abandoning an innovation project during the concept stage and that low-technological manufacturing and non-KIS service sectors are more sensitive to financial constraints.

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Bibliographic Info

Paper provided by Institut d'Economia de Barcelona (IEB) in its series Working Papers with number 2013/11.

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Length: 28 pages
Date of creation: 2013
Date of revision:
Handle: RePEc:ieb:wpaper:2013/6/doc2013-11

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Keywords: Barriers to innovation; failure of innovation projects; financial constraints;

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  1. Gorodnichenko, Yuriy & Schnitzer, Monika, 2010. "Financial constraints and innovation: Why poor countries don't catchup," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University 341, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
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Citations

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Cited by:
  1. Audretsch, David B. & Segarra Blasco, Agustí, 1958- & Teruel, Mercedes, 2014. "Why not all young firms invest in R&D," Working Papers, Universitat Rovira i Virgili, Department of Economics 2072/225296, Universitat Rovira i Virgili, Department of Economics.
  2. Brancati, Emanuele, 2013. "Innovation, financial constraints and relationship lending: evidence from Italy during the recent crises," MPRA Paper 50329, University Library of Munich, Germany.

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