Liquidity, innovation, and endogenous growth

Semyon Malamud and Francesca Zucchi

Journal of Financial Economics, 2019, vol. 132, issue 2, 519-541

Abstract: We build a model of endogenous, innovation-driven growth in which innovative firms have costly access to outside financing and hoard cash reserves to maintain financial flexibility. We show that financing frictions slow down Schumpeterian creative destruction by discouraging entry. As a result, financing frictions importantly affect the composition of growth, by reducing the contribution of entrants but spurring the contribution of incumbents. We investigate the net impact of these countervailing effects on the equilibrium growth rate and welfare.

Keywords: Innovation; Cash management; Financing frictions; Endogenous growth (search for similar items in EconPapers)
JEL-codes: G31 G32 O31 O41 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:132:y:2019:i:2:p:519-541

DOI: 10.1016/j.jfineco.2018.11.002

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