Microeconometric evidence of financing frictions and innovative activity

Tiwari, Amaresh, Mohnen, Pierre, Palm, Franz and Schim van der Loeff, Sybrand (2012). Microeconometric evidence of financing frictions and innovative activity. UNU-MERIT.

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  • Author Tiwari, Amaresh
    Mohnen, Pierre
    Palm, Franz
    Schim van der Loeff, Sybrand
    Title Microeconometric evidence of financing frictions and innovative activity
    Publication Date 2012
    Publisher UNU-MERIT
    Abstract Using a unique panel data of Dutch innovation and financial variables we empirically investigate how financing and innovation vary across firm characteristics. The study also tries to gauge the extent of market failure due to the presence of financing frictions. Our main findings can be summarized as follows. First, when firms face endogenous financial constraints, debt financing and innovation choices are not independent of firm characteristics such as age, size, and existing leverage. In the absence of financial constraints, however, firms, almost uniformly across firm characteristics, become less inclined - as compared to firms facing constraints - to engage in innovative activity by raising debt. Second, small, young, highly leveraged, and firms with lower collateralizable assets are more likely to be financially constrained. Third, large, young, and low leveraged firms are more likely to be innovators. Fourth, financial constraints adversely affect a firm’s R&D intensity. Fifth, smaller and younger firms are more R&D intensive. A new estimator, that combines the method of "Correlated Random Effects" and "Control Function" to account for the endogeneity of regressors in a structural equations model, is developed.
    Keyword Financial constraints
    Capital structure
    R&D
    Innovation
    Firm characteristics
    Panel data
    Correlated random effects
    Control function
    Expected a posteriori
    JEL G30
    O30
    C30
    Copyright Holder UNU-MERIT
    Copyright Year 2012
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    Created: Wed, 11 Dec 2013, 17:06:39 JST