Technology policy evaluation: The interaction between the financial constraint of firms and level of financial additionality

This study analyses the differentiated effects of the public support for private R&D and innovation considering the financial situation of the firm. Two main questions are analyzed. Firstly, do the firms that have less access to funds for RDI –and therefore could depend more on the public support- get more frequently support? And, secondly, do such firms show a higher level of financial additionality than the firms with less financial restrictions? Despite of the fact that market failures imply basically that firms underinvest in R&D and often lack access to financial markets, only a few papers were detected that analyze the above-mentioned questions and present contradictory non-conclusive results. All of them used only one or two –often dummy- variables as indicator to measure the financial restrictions. Moreover, only four studies analyzed the intermediating role of the financial restriction on the policy impact in terms of the financial additionality and five measures its effect on the degree of participation. The main novelty of this paper is the simultaneous use of a broad set 17 different indicators (reflecting quantitative data on the firm’s liabilities or indebtedness, assets, and liquidity) directly derived from the firms’ balance sheet. These were clustered by a factor analysis in 7 synthetic indicators, which are used in an innovation policy evaluation framework based on the Propensity Score Matching Method. The main findings show that in Spain financial constraints negatively affect the access to public funds. There are significant differences between the level and cost of debt for both probability and financial additionality. Solvency indicators report that solvent firms are negatively discriminated for the likelihood of participation, however we find different effects for the impact depending on the public support that firms receive and their size.