Strapped for Cash: The Role of Financial Constraints for Innovating Firms

34 Pages Posted: 21 Mar 2023

See all articles by Esther Ann Bøler

Esther Ann Bøler

Imperial College Business School; Centre for Economic Policy Research (CEPR)

Andreas Moxnes

University of Oslo - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Karen Helene Ulltveit-Moe

University of Oslo - Department of Economics; Centre for Economic Policy Research (CEPR)

Date Written: 2023

Abstract

This paper makes use of a reform that allowed firms to use patents as stand-alone collateral, to estimate the magnitude of collateral constraints and to quantify the aggregate impact of these constraints on misallocation and productivity. Using matched firm-bank data for Norway, we find that bank borrowing increased for firms affected by the reform relative to the control group. We also find an increase in the capital stock, employment and innovation as well as equity funding. We interpret the results through the lens of a model of monopolistic competition with potentially collateral constrained heterogeneous firms. Parameterizing the model using well-identified moments from the reduced form exercise, we find quantitatively large gains in output per worker in the sectors in the economy dominated by constrained (and intangible-intensive) firms. The gains are primarily driven by capital deepening, whereas within-industry misallocation plays a smaller role.

Keywords: intangible capital, patents, credit constraints, misallocation, productivity

JEL Classification: D250, G320, L250, L260, O340, O470

Suggested Citation

Bøler, Esther Ann and Moxnes, Andreas and Ulltveit-Moe, Karen Helene, Strapped for Cash: The Role of Financial Constraints for Innovating Firms (2023). CESifo Working Paper No. 10320, Available at SSRN: https://ssrn.com/abstract=4394845 or http://dx.doi.org/10.2139/ssrn.4394845

Esther Ann Bøler (Contact Author)

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Andreas Moxnes

University of Oslo - Department of Economics ( email )

P.O. Box 1095 Blindern
N-0317 Oslo
Norway

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Karen Helene Ulltveit-Moe

University of Oslo - Department of Economics ( email )

P.O. Box 1095 Blindern
N-0317 Oslo
Norway

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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