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Microeconometric evidence of financing frictions and innovative activity - a revision

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  • Tiwari, Amaresh K.

    ()
    (University of Liege)

  • Mohnen, Pierre

    ()
    (UNU-MERIT / MGSoG, SBE, Maastricht University, and CIRANO)

  • Palm, Franz

    ()
    (SBE, Maastricht University and CESifo)

  • Schim van der Loeff, Sybrand

    ()
    (SBE, Maastricht University)

Abstract

Using Dutch data we empirically investigate how financing and innovation vary across firm characteristics. We find that when firms face financial constraints, debt financing and innovation choices are not independent of firm characteristics, and R&D slows down. In the absence of financial constraints, however, as they raise debt, firms become less inclined to innovate and the change in the propensity to innovate no longer varies with firm characteristics. We find that financing constraints faced, propensity to innovate, and R&D intensity are not uniform across firm characteristics. A new 'Control Function' estimator to account for heterogeneity and endogeneity has been developed.

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Paper provided by United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT) in its series MERIT Working Papers with number 027.

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Date of creation: 2013
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Handle: RePEc:unm:unumer:2013027

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Keywords: Innovation; R&D; Capital Structure; Financial Constraints; Firm Characteristics; Correlated Random Effects; Control Function; Expected a Posteriori;

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  1. Anastasia Semykina & Jeffrey M. Woodridge, 2010. "Estimating Panel Data Models in the Presence of Endogeneity and Selection," Working Papers wp2010_10_01, Department of Economics, Florida State University.
  2. Papke, Leslie E. & Wooldridge, Jeffrey M., 2008. "Panel data methods for fractional response variables with an application to test pass rates," Journal of Econometrics, Elsevier, vol. 145(1-2), pages 121-133, July.
  3. Newey, Whitney K., 1984. "A method of moments interpretation of sequential estimators," Economics Letters, Elsevier, vol. 14(2-3), pages 201-206.
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