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Capital structure and innovation: causality and determinants


  • Eleonora Bartoloni



It is widely recognized that a firm’s financial behaviour is the result of a complex mix of conditions, both internal and external to the firm; these may affect its investment decisions and its growth opportunities. This paper offers a twofold contribution to the empirical debate on the financing of innovation. First of all, it provides a comprehensive descriptions of possible simultaneous patterns which may affect a firm’s relevant dimensions, namely innovation inputs, innovation output, leverage and profitability. By using a Granger-Causality framework we will show that a firm’s leverage does not cause innovation output, as proxied by a measure of a firm’s successful innovation, while it is rather caused by successful innovation and a firm’s operating profitability. The second contribution is an original investigation of the determinants of a firm’s capital structure based on a panel of Italian firms which links the third Community Innovation Survey with an administrative data source providing economic and financial information collected from balance sheets and income statements referring to the period 1996–2003. This paper provides support for the pecking order theory as our firms are less indebted when operating profitability increases, but the use of external funding increases with their innovative effort. We also find support for the existence of credit constrains which seem to affect small innovative firms when compared with larger enterprises. Copyright Springer Science+Business Media, LLC. 2013

Suggested Citation

  • Eleonora Bartoloni, 2013. "Capital structure and innovation: causality and determinants," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 40(1), pages 111-151, February.
  • Handle: RePEc:kap:empiri:v:40:y:2013:i:1:p:111-151 DOI: 10.1007/s10663-011-9179-y

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    References listed on IDEAS

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    2. Simon Loretz & Socrates Mokkas, 2015. "Evidence for Profit Shifting with Tax-sensitive Capital Stocks," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 71(1), pages 1-36, March.
    3. Jun Du & Yama Temouri, 2015. "High-growth firms and productivity: evidence from the United Kingdom," Small Business Economics, Springer, vol. 44(1), pages 123-143, January.
    4. Ana Milena Padilla Ospina & Jorge Alberto Rivera Godoy & Javier Humberto Ospina Holguín, 2015. "Determinantes de la estructura de capital de las mipymes del sector real participantes del Premio Innova 2007-2011," REVISTA FINANZAS Y POLÍTICA ECONÓMICA, UNIVERSIDAD CATOLICA DE COLOMBIA, vol. 7(2), pages 359-380, July.
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    6. Wirginia Doryn, 2014. "Finansowe determinanty deinternacjonalizacji polskich spó³ek akcyjnych w latach 2008-2011 / Financial determinants of de-internationalization of Polish joint-stock companies in 2008-2011," International Economics, University of Lodz, Faculty of Economics and Sociology, issue 7, pages 111-125, September.

    More about this item


    Capital structure; Innovation; Profitability; Community innovation survey; Panel data; G32; O32; L25;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance


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