Financial conditions and green R&D

Luca Fornaro (), Veronica Guerrieri, Will Hotten and Lucrezia Reichlin
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Luca Fornaro: https://www.upf.edu/web/econ/faculty/-/asset_publisher/6aWmmXf28uXT/persona/id/3420861

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: This paper studies how financial conditions affect research and development (R&D) by firms specialized in green innovation. Using U.S. patent data matched with Compustat, we identify “green innovators” as firms with a high cumulative share of green patents. Although they account for a small share of total green patenting, these firms occupy central positions in the green-innovation ecosystem. Estimating firm-level impulse responses to exogenous changes in broad financial conditions, we find that tightening has a disproportionately large and persistent negative effect on the R&D of specialized green innovators. In contrast, R&D by diversified innovators and non-innovators responds only weakly. Green innovators are younger, smaller, and more dependent on external finance, suggesting that financial tightening introduces a systematic bias against upstream green technological development.

Date: 2026-06
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