The Impact of Financial Constraints on Innovation: What Can Be Learned from a Direct Measure?

37 Pages Posted: 21 Oct 2010

Date Written: June 2007

Abstract

This paper examines the impact of financial constraints on innovation for established firms. We make use of a direct measure of the existence of financial constraints obtained thanks to a specific survey addressed to French established firms (FIT, Sessi). This is a distinctive feature of this paper as most of previous studies had to rely on proxies (like the cash-flow sensitivity) which may be subject to interpretation problems. The probability to have innovative activities and the probability to face financial constraints are simultaneously estimated by a recursive bivariate probit model. Accounting for the endogeneity of the financial constraint variable, we find that financial constraints significantly reduce the likelihood that firms have innovative activities. The probability to encounter financial constraints is explained by firms' ex ante financing structure and economic performances.

Keywords: innovation, financing constraints, recursive bivariate probit

JEL Classification: G31, C35, O31

Suggested Citation

Savignac, Frederique, The Impact of Financial Constraints on Innovation: What Can Be Learned from a Direct Measure? (June 2007). Banque de France Working Paper No. 169. Available at SSRN: https://ssrn.com/abstract=1694507 or http://dx.doi.org/10.2139/ssrn.1694507

Frederique Savignac (Contact Author)

University Paris-Est Créteil (UPEC) ( email )

61 avenue du General de Gaulle
Creteil cedex, 94010
France

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