Innovation and credit constraints: Evidence from Swedish exporting firms

Existing studies associates financial constraints among innovators to small, young and high-tech firms. High adjustment cost implies that firms save money by smoothing innovation spending across the business cycle if they have available resources. This paper examines whether previous findings on financial constraints can be generalized to exporting firms. To do so, we investigate possible differences in the innovation-cash flow link between high-tech firms and all exporters, creation and exploitation innovation activities, persistent and non-persistent exporters. Applying a modified Euler model and dynamic two-step GMM estimator on close to 7,000 exporting firms in Sweden, the estimation shows that (i) the typical exporter is not financially constrained in any type of innovation activities, (ii) high-tech firms - but only persistent exporters - behave as if they have higher adjustment cost than other firms engaged in knowledge creating activities, and (iii) both persistent and non-persistent exporters in high-tech sector are more financially constrained than the whole group of manufacturing exporters when innovation is measured as knowledge exploitation.