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Microeconometric Evidence of Financing Frictions and Innovative Activity

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  • Amaresh K. Tiwari
  • Pierre Mohnen
  • Franz Palm
  • Sybrand Schim van der Loeff

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.

Suggested Citation

  • Amaresh K. Tiwari & Pierre Mohnen & Franz Palm & Sybrand Schim van der Loeff, 2014. "Microeconometric Evidence of Financing Frictions and Innovative Activity," CESifo Working Paper Series 4645, CESifo.
    • Handle: RePEc:ces:ceswps:_4645
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    References listed on IDEAS

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    More about this item

    Keywords

    innovation; R&D; capital structure; financial constraints; firm characteristics; correlated random effects; control function; expected a posteriori;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General

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