Novel Approaches to Coherency Conditions in Dynamic LDV Models: Quantifying Financing Constraints and a Firm's Decision and Ability to Innovate

Vassilis Hajivassiliou, Frédérique Savignac and Frédérique Savignac
Authors registered in the RePEc Author Service: Frédérique Savignac

STICERD - Econometrics Paper Series from Suntory and Toyota International Centres for Economics and Related Disciplines, LSE

Abstract: We develop novel methods for establishing coherency conditions in Static and Dynamic Limited Dependent Variables (LDV) Models. We propose estimation strategies based on Conditional Maximum Likelihood Estimation for simultaneous LDV models without imposing recursivity. Monte-Carlo experiments confirm substantive Mean-Squared-Error improvements of our approach over other estimators. We analyse the impact of financing constraints on innovation: ceteris paribus, a firm facing binding finance constraints is substantially less likely to undertake innovation, while the probability that a firm encounters a binding finance constraint more than doubles if the firm is innovative. A strong role for state dependence in dynamic versions of our models is also established.

Keywords: Financing Constraints; Innovation; Dynamic Limited Dependent Variable Models; Joint Bivariate Probit Model; Econometric Coherency Conditions; State Dependence (search for similar items in EconPapers)
JEL-codes: C15 C51 C52 (search for similar items in EconPapers)
Date: 2019-10
New Economics Papers: this item is included in nep-dcm, nep-ore and nep-sbm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Working Paper: Novel approaches to coherency conditions in dynamic LDV models: quantifying financing constraints and a firm's decision and ability to innovate (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:cep:stiecm:606

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