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Financial Constraints: Do They Matter to R&D Subsidy Attribution?

  • Filipe Silva

    ()

    (GEMF, University of Coimbra, Portugal)

  • Carlos Carreira

    ()

    (Faculty of Economics/GEMF, University of Coimbra, Portugal)

Even though innovation subsidies and financial constraints are two closely related lines of research, the link between them is rather unexplored. This paper is, to our knowledge, the first to explicitly analyse both the allocation of innovation subsidies and their role in alleviating firms’ financial constraints. It is not the purpose of the paper to question whether subsidies foster innovation, but rather if: a) subsidies are being correctly allocated to financially constrained firms; b) they effectively reduce financial constraints. We argue that, in addition to the usual “public good” arguments behind the allocation of innovation subsidies, the extent to which firms are able to obtain external funding should not be overlooked. Overall, our results question the allocation and effectiveness of subsidies in alleviating financial constraints of firms willing to innovate. Accordingly, these findings have serious implications on the design of future innovation policy actions.

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File URL: http://gemf.fe.uc.pt/workingpapers/pdf/2012/gemf_2012-18.pdf
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Paper provided by GEMF - Faculdade de Economia, Universidade de Coimbra in its series GEMF Working Papers with number 2012-18.

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Length: 41 pages
Date of creation: Nov 2012
Date of revision:
Handle: RePEc:gmf:wpaper:2012-18
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  1. Dirk Czarnitzki & Hanna Hottenrott, 2011. "R&D investment and financing constraints of small and medium-sized firms," Small Business Economics, Springer, vol. 36(1), pages 65-83, January.
  2. Filipe Silva & Carlos Carreira, 2010. "Financial constraints: Are there differences between manufacturing and services?," GEMF Working Papers 2010-16, GEMF - Faculdade de Economia, Universidade de Coimbra.
  3. Czarnitzki, Dirk & Hottenrott, Hanna & Thorwarth, Susanne, 2009. "Industrial research versus development investment: the implications of financial constraints," ZEW Discussion Papers 09-049, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  4. Katrin Hussinger, 2008. "R&D and subsidies at the firm level: an application of parametric and semiparametric two-step selection models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 23(6), pages 729-747.
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  7. Filipe Silva & Carlos Carreira, 2009. "No Deep Pockets: Some stylized results on firms' financial constraints," GEMF Working Papers 2009-06, GEMF - Faculdade de Economia, Universidade de Coimbra.
  8. Alex Coad, 2007. "Neoclassical vs Evolutionary Theories of Financial Constraints : Critique and Prospectus," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00144415, HAL.
  9. Meuleman, M. & De Maeseneire, W., 2008. "Do R&D subsidies affect SME's: access to external financing," Vlerick Leuven Gent Management School Working Paper Series 2008-12, Vlerick Leuven Gent Management School.
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  12. Audretsch, David B. & Bönte, Werner & Mahagaonkar, Prashanth, 2012. "Financial signaling by innovative nascent ventures: The relevance of patents and prototypes," Research Policy, Elsevier, vol. 41(8), pages 1407-1421.
  13. Czarnitzki, Dirk & Lopes Bento, Cindy, 2010. "Evaluation of public R&D policies: A cross-country comparison," ZEW Discussion Papers 10-073, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
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  17. Filipe Silva & Carlos Carreira, 2012. "Measuring Firms' Financial Constraints: A Rough Guide," Notas Económicas, Faculdade de Economia, Universidade de Coimbra, issue 36, pages 23-46, December.
  18. Frederique Savignac, 2008. "Impact Of Financial Constraints On Innovation: What Can Be Learned From A Direct Measure?," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 17(6), pages 553-569.
  19. Sean Cleary, 1999. "The Relationship between Firm Investment and Financial Status," Journal of Finance, American Finance Association, vol. 54(2), pages 673-692, 04.
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  21. David B. Audretsch & Werner Bönte & Prashanth Mahagaonkar, 2009. "Financial Signaling by Innovative Nascent Entrepreneurs," Jena Economic Research Papers 2009-012, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  22. Filipe Silva & Carlos Carreira, 2012. "Do financial constraints threat the innovation process? Evidence from Portuguese firms," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 21(8), pages 701-736, November.
  23. Cédric Schneider & Reinhilde Veugelers, 2010. "On young highly innovative companies: why they matter and how (not) to policy support them," Industrial and Corporate Change, Oxford University Press, vol. 19(4), pages 969-1007, August.
  24. Aydogan Alti, 2003. "How Sensitive Is Investment to Cash Flow When Financing Is Frictionless?," Journal of Finance, American Finance Association, vol. 58(2), pages 707-722, 04.
  25. Almus, Matthias & Czarnitzki, Dirk, 2003. "The Effects of Public R&D Subsidies on Firms' Innovation Activities: The Case of Eastern Germany," Journal of Business & Economic Statistics, American Statistical Association, vol. 21(2), pages 226-36, April.
  26. Steven M. Fazzari & R. Glenn Hubbard & BRUCE C. PETERSEN, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
  27. Aerts, Kris & Schmidt, Tobias, 2006. "Two for the price of one? On additionality effects of R&D subsidies: A comparison between Flanders and Germany," ZEW Discussion Papers 06-63, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
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  30. Adam B. Jaffe, 2002. "Building Programme Evaluation into the Design of Public Research-Support Programmes," Oxford Review of Economic Policy, Oxford University Press, vol. 18(1), pages 22-34, Spring.
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