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The impact of financial constraints on innovation: What can be learned from a direct measure?

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  • Savignac, F.

Abstract

This paper examines the impact of financial constraints on innovation for established firms. We make use of a direct measure of the existence of financial constraints obtained thanks to a specific survey addressed to French established firms (FIT, Sessi). This is a distinctive feature of this paper as most of previous studies had to rely on proxies (like the cash-flow sensitivity) which may be subject to interpretation problems. The probability to have innovative activities and the probability to face financial constraints are simultaneously estimated by a recursive bivariate probit model. Accounting for the endogeneity of the financial constraint variable, we find that financial constraints significantly reduce the likelihood that firms have innovative activities. The probability to encounter financial constraints is explained by firms' ex ante financing structure and economic performances.

Suggested Citation

  • Savignac, F., 2007. "The impact of financial constraints on innovation: What can be learned from a direct measure?," Working papers 169, Banque de France.
  • Handle: RePEc:bfr:banfra:169
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    More about this item

    Keywords

    Innovation ; Financing constraints ; Recursive bivariate probit.;
    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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