Microeconometric Evidence of Financing Frictions and Innovative Activity

51 Pages Posted: 13 Mar 2014

See all articles by Amaresh Tiwari

Amaresh Tiwari

University of Liege

Pierre Mohnen

Maastricht University - UNU-MERIT

Franz C. Palm

University of Maastricht - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Sybrand Schim van der Loeff

University of Maastricht

Date Written: February 21, 2014

Abstract

Using Dutch data we empirically investigate how financing and innovation vary across firm characteristics. We find that when firms face financial constraints, debt financing and innovation choices are not independent of firm characteristics, and R&D slows down. In the absence of financial constraints, however, as they raise debt, firms become less inclined to innovate and the change in the propensity to innovate no longer varies with firm characteristics. We find that financing constraints faced, propensity to innovate, and R&D intensity are not uniform across firm characteristics. A new “control function” estimator to account for heterogeneity and endogeneity has been developed.

Keywords: innovation, R&D, capital structure, financial constraints, firm characteristics, correlated random effects, control function, expected a posteriori

JEL Classification: G300, O300, C300

Suggested Citation

Tiwari, Amaresh and Mohnen, Pierre and Palm, Franz C. and van der Loeff, Sybrand Schim, Microeconometric Evidence of Financing Frictions and Innovative Activity (February 21, 2014). CESifo Working Paper Series No. 4645, Available at SSRN: https://ssrn.com/abstract=2407841

Amaresh Tiwari

University of Liege ( email )

B-4000 Liege
Belgium

Pierre Mohnen

Maastricht University - UNU-MERIT ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands
31-43-3884464 (Phone)
31-43-3884495 (Fax)

Franz C. Palm (Contact Author)

University of Maastricht - Department of Economics ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands
+31-(0)43-3883833 (Phone)
+31-(0)43-3258535 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.cesifo.de

Sybrand Schim Van der Loeff

University of Maastricht ( email )

P.O. Box 616
Maastricht, 6200MD
Netherlands

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