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R&D, Innovation and Liquidity Constraints

Author

Listed:
  • Maria Luisa Mancusi

    (KITeS, Bocconi University, Milan, Italy)

  • Andrea Vezzulli

    (Department of Management, University of Bologna, Bologna, Italy and KITeS, Bocconi University, Milan, Italy)

Abstract

We study the effect of financing constraints on the decision to do R&D and on the level of R&D investment using survey data and complete financial accounting data on a large number of Italian manufacturing SMEs from 2001 to 2003. We use a direct indicator of credit constraints and employ an econometric approach allowing for the existence of binding financing constraints to be endogenously determined. We find that there is a significantly negative effect on the probability to set up R&D activities due to the presence of financing constraints, ceteris paribus. We also find that ignoring the endogeneity of the financing constraints indicator and the sample selection originating from firms not interested in doing R&D induces a bias in the estimated effect, which turns out to be positive and significant. We find the same result when studying the effect of liquidity constraints on R&D spending and are able to show that its reduction of liquidity constraints is largely to be associated with the reduction in the likelihood to do R&D (the R&D participation decision), rather than with a reduced level of investment. Finally, but importantly, firms that are both young and small appear to have additional difficulties in obtaining financing - even after controlling for both size and age - and disply a higher probability of being subject to credit constraints, ceteris paribus.

Suggested Citation

  • Maria Luisa Mancusi & Andrea Vezzulli, 2010. "R&D, Innovation and Liquidity Constraints," KITeS Working Papers 030, KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy, revised May 2010.
  • Handle: RePEc:cri:cespri:kites30_wp
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    More about this item

    Keywords

    R&D; financing constraints; bivariate probit; IV Tobit;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • 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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