Hans Lööf and Pardis Nabavi
Centre of Excellence for Science and
Innovation Studies
Royal Institutes of Technology, Stockholm
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RESEARCH QUESTION
Our primary interest how a firm's
innovative activity across the business
cycle varies with
capital structure,
export frequency and
geographical location.
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WHY IS THIS IMPORTANT
While the literature on innovative activity
shows the advantages with innovation
as persistent and stable activity, firms’
access to finance is typically volatile and
highly affected by both cash-flow and
supply of equity.
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FORCES BEHIND HETROGENEITY
Aghion et al. 2008
Financial problems gives rise to the pro-cyclical pattern
in innovative investments by constrained firms,
whereas innovation follows a Schumpeterian cycle
among non-constrained firms.
Thus, the non-constrained firms can innovate in
recessions and increase their competitiveness against
other firms.
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EMPIRICAL APPROACH
We test financial constraints among the exporting firms by adopting
the pecking order approach (Fazzari et al. 1988) behind
innovation-cash flow sensitivity.
We use patent application as a proxy for innovation activity.
Historically both patent filings as well as R&D have moved in parallel
with the development of GDP, (OECD 2009, Griliches 1995).
Prediction: Only financial constrained firms are sensitive to variation
in cash flow
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CONTRIBUTION 1
Innovation have intrinsic properties that make it difficult
to finance externally (Arrow 1962, Hall 2002, Hall and
Lerner 2010),
Empirical documentation on financial constraints among
innovative firms constitutes still a very limited
literature (Brown and Petersen, 2009).
This is particularly true for small firms . In our study, the
median firm has than 30 employees and the mean is
around 100.
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CONTRIBUTION 2-3
Only recently economist have started to
investigate the links between credit
constraints and
- exports (Wagner 2013),
- geographical location (Bae et al. 2008),
Almazan et al. 2010, Gao et 2011),
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INITIAL INSPECTION: 8,051 UNIQUE FIRMS
AND ABOUT 50,000 APPLICATIONS
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RESEARCH STRATEGY (1)
All exporting firms.
Only persistent
exporters
Assumption: Less sensitive to economic
schocks (Wagner), but a difference can be
expected (Aghion)
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PATENT APPLICATIONS 1997-2010.
High ratio
Equity/total assets
Low/medium ratio
Equity/total assets
Quantile 4
Quantile 1-3
Difference: Brown and Petersen
(2009)
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PATENT APPLICATIONS 1997-2010.
Access to financial
services and
other knowledge
intensive services
Low
Medium
High
Difference (Lerner 2009, Backman 2013,
Johansson and Lööf 2014))
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Klaesson,
Johansson,
Olsson approach
(2003)
Accessibility
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(2,3]
(1,2]
[1,1]
Total Patent applications-Exporters,1997-2010
Geographical
distribution of the
50,000 patent
applications
(510,29714]
(210,510]
(99.5,210]
(48,99.5]
(35,48]
(22.5,35]
(15,22.5]
(11,15]
(7,11]
(4,7]
(2,4]
(1,2]
(0,1]
[0,0]
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SECOND INSPECTION:
SCHUMPETERIAN REGROUPING IN CITIES
HIGH EQUITY FIRMS
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THIRD INSPECTION:
FINANCIAL CONSTRAINTS IN CITIES
LOW AND MEDIUM EQUITY FIRMS
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METHODOLOGICAL APPROACH
Panel data, 14 years
1,837 unique Exporters (30% persistent)
50% Low access
30% Medium Access
20 % High Access
Negative Binomial Estimator
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TWO SPECIFICATIONS
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WHAT DID WE KNOW BEFORE
Financial constraints may hamper internal
spillovers and knowledge accumulation
within firms.
Persistent innovation efforts over the
business cycle creates a self-enforcing
effect s
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NEW INSIGHTS
Difference between
(1) firms depending on their capital structure also among
exporters (selected group of firms)
(2) exporters in general and firms operating persistently
on foreign markets year after year
(3) firms located in metropolitan regions and firms
located in other places.
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THANK YOU
FOR YOUR ATTENTION!
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