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Financial constraints for investors and the speed of adaptation: Are innovators special?


  • von Kalckreuth, Ulf


This paper uses a large panel of survey data on German firms in the manufacturing sector to analyse the effects of financing constraints for investors in general and for innovative firms in particular. Survey data with information on financing conditions are potentially a valuable tool that avoids the Kaplan and Zingales (1997) critique on the use of cash flow sensitivities for the identification of financial constraints. Using the autumn and the spring wave of the Ifo Institute?s Investment Tests (IT) during the years 1988-1998, we create a panel with information on investment, innovation activity and financing conditions. Financial constraints affect the distribution of investment over time in a fundamental way. Following a shock, the adjustment of a constrained firm is slower and less spiky. After developing this argument theoretically building on Schworm?s (1980) model of optimal investment under financial constraints, we use it to test the empirical content of our survey data by means of an error correction model of investment activity. Our preliminary results indicate that constrained firms in fact do react more slowly, but that innovative firms are not especially affected. This supports an argument made by Bond, Harhoff and van Reenen (1999): In equilibrium, innovative activity will come from a group of firms that is self-selected on the basis of their being able to overcome the special difficulties of financing innovation.

Suggested Citation

  • von Kalckreuth, Ulf, 2004. "Financial constraints for investors and the speed of adaptation: Are innovators special?," Discussion Paper Series 1: Economic Studies 2004,20, Deutsche Bundesbank.
  • Handle: RePEc:zbw:bubdp1:2165

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    References listed on IDEAS

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    Cited by:

    1. von Kalckreuth, Ulf, 2008. "Financing constraints, firm level adjustment of capital and aggregate implications," Discussion Paper Series 1: Economic Studies 2008,11, Deutsche Bundesbank.
    2. Frédérique Savignac, 2006. "The impact of financial constraints on innovation : evidence from French manufacturing firms," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00115717, HAL.
    3. Klaus Abberger & Sascha Becker & Barbara Hofmann & Klaus Wohlrabe, 2007. "Mikrodaten im ifo Institut für Wirtschaftsforschung – Bestand, Verwendung und Zugang," AStA Wirtschafts- und Sozialstatistisches Archiv, Springer;Deutsche Statistische Gesellschaft - German Statistical Society, vol. 1(1), pages 27-42, June.
    4. Strotmann, Harald & Döpke, Jörg & Buch, Claudia M., 2006. "Does trade openness increase firm-level volatility?," Discussion Paper Series 1: Economic Studies 2006,40, Deutsche Bundesbank.
    5. Audretsch, David B. & Weigand, Jurgen, 2005. "Do knowledge conditions make a difference?: Investment, finance and ownership in German industries," Research Policy, Elsevier, vol. 34(5), pages 595-613, June.
    6. Čechu­ra, Lukas, 2008. "Investment, credit constraints and public policy in a neoclassical adjustment cost framework
      [Investitionen, Kreditrationierung und Agrarpolitik in einem dynamischen neoklassischen Modell mit Anpas
      ," IAMO Discussion Papers 115, Leibniz Institute of Agricultural Development in Transition Economies (IAMO).

    More about this item


    Financial constraints; investment; innovation; dynamic panel data models;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models


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