Endogenous financial constraints and innovation

Financial dependence and innovation: the case of public versus private firms

Henry Lahr and Andrea Mina

Industrial and Corporate Change, 2021, vol. 30, issue 3, 587-621

Abstract: We investigate which indicators of a firm’s innovation activities are associated with financial constraints and analyze the nature and direction of causal links between innovation and financial constraints. By estimating simultaneous bivariate probit models on data from the UK Innovation Surveys, we show that among innovation inputs, research and development (R&D) activity increases the likelihood that firms face financial constraints. Among innovation outputs, only new-to-market products generate financial constraints. Reverse effects on innovation appear limited to external R&D.

Date: 2021
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