Financial Constraints and the Failure of Innovation Projects

XREAP WP 2013-01

34 Pages Posted: 8 Mar 2013

See all articles by Agusti Segarra Blasco

Agusti Segarra Blasco

Rovira i Virgili University

Jose Garcia-Quevedo

Barcelona Institute of Economics (IEB); University of Barcelona - Faculty of Economic Science and Business Studies

Mercedes Teruel

Rovira i Virgili University

Date Written: March 6, 2013

Abstract

Theoretical and empirical approaches have stressed the existence of financial constraints in innovative activities of firms. This paper analyses the role of financial obstacles on the likelihood of abandoning an innovation project. Although a large number of innovation projects are abandoned before their completion, the empirical evidence has focused on the determinants of innovation while failed projects have received little attention. Our analysis differentiates between internal and external barriers on the probability of abandoning a project and we examine whether the effects are different depending on the stage of the innovation process. In the empirical analysis carried out for a panel data of potential innovative Spanish firms for the period 2004-2010, we use a bivariate probit model to take into account the simultaneity of financial constraints and the decision to abandon an innovation project. Our results show that financial constraints most affect the probability of abandoning an innovation project during the concept stage and that low-technological manufacturing and non-KIS service sectors are more sensitive to financial constraints.

Keywords: barriers to innovation, failure of innovation projects, financial constraints

JEL Classification: O31, D21

Suggested Citation

Blasco, Agusti Segarra and Garcia-Quevedo, Jose and Teruel, Mercedes, Financial Constraints and the Failure of Innovation Projects (March 6, 2013). XREAP WP 2013-01, Available at SSRN: https://ssrn.com/abstract=2229167 or http://dx.doi.org/10.2139/ssrn.2229167

Agusti Segarra Blasco (Contact Author)

Rovira i Virgili University ( email )

Av. Universitat 1
Tarragona, Tarragona 43204
Spain

Jose Garcia-Quevedo

Barcelona Institute of Economics (IEB) ( email )

Av. Diagonal 690
Barcelona, E-08034
Spain

University of Barcelona - Faculty of Economic Science and Business Studies ( email )

Barcelona
Spain

Mercedes Teruel

Rovira i Virgili University ( email )

Av. Universitat 1
Tarragona, Tarragona 43204
Spain

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