Template-type: ReDIF-Paper 1.0
Author-Name: Tiwari, Amaresh K.
Author-Email: A.Tiwari@ulg.ac.be
Author-Workplace-Name: University of Liege
Author-Name: Mohnen, Pierre
Author-Email: P.Mohnen@maastrichtuniversity.nl
Author-Workplace-Name: UNU-MERIT/MGSoG, Maastricht University, and CIRANO
Author-Name: Palm, Franz C.
Author-Email: F.Palm@maastrichtuniversity.nl
Author-Workplace-Name: Maastricht University, and CESifo
Author-Name: Schim van der Loeff, Sybrand
Author-Email: S.Loeff@maastrichtuniversity.nl
Author-Workplace-Name: Maastricht University
Title: Microeconometric evidence of financing frictions and innovative activity
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.
Classification-JEL: G30, O30, C30
Keywords: Financial Constraints, Capital Structure, R&D, Innovation, Firm
	 Characteristics, Panel Data, Correlated Random Effects, Control Function
Series: UNU-MERIT Working Papers
Creation-Date: 2012
Number: 062
File-URL: http://www.merit.unu.edu/publications/wppdf/2012/wp2012-062.pdf
File-Format: application/pdf
File-Size: 275 Kb
Handle: RePEc:unm:unumer:2012062