HOW T O FIN ANCE INNOV ATION PERSISTENTLY? A PAN EL DA TA STUDY ON EXPOR TING FIRMS IN SWEDEN WRS A204 02 19 1 Hans Lööf and Pardis Nabavi Centre of Excellence for Science and Innovation Studies Royal Institutes of Technology, Stockholm
Feb 09, 2016
HOW TO FI
NANCE
INNOVATIO
N
PERSISTE
NTLY?
A PANEL
DATA STU
DY ON
EXPORTIN
G FIRMS IN
SWEDEN
W R S A 2 0 4 02 1
9
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Hans Lööf and Pardis Nabavi Centre of Excellence for Science and Innovation StudiesRoyal Institutes of Technology, Stockholm
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 HETROGENEITYAghion et al. 2008Financial 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 APPROACHWe 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 1Innovation 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 2-3Only 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
All exporting firms.
Only persistent exporters
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RESEARCH STRATEGY (1)
Assumption: Less sensitive to economic schocks (Wagner), but a
difference can be expected (Aghion)
High ratioEquity/total
assets
Quantile 4
Low/medium ratio
Equity/total assets
Quantile 1-3
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PATENT APPLICATIONS 1997-2010.
Difference: Brown and Petersen (2009)
Access to financial services and other knowledge intensive services
LowMediumHigh
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PATENT APPLICATIONS 1997-2010.
Difference (Lerner 2009, Backman 2013, Johansson and Lööf 2014))
12(2,3](1,2][1,1]
AccessibilityKlaesson, Johansson,
Olsson approach
(2003)
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(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]
Total Patent applications-Exporters,1997-2010Geographical distribution of
the 50,000 patent
applications
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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
METHODOLOGICAL APPROACHPanel data, 14 years1,837 unique Exporters (30% persistent)
50% Low access30% Medium Access20 % High Access
Negative Binomial Estimator
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17TWO SPECIFICATIONS
REGRESSION RESULTS
ALL EXPO
RTERS
-
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REGRESSION RESULTS
PERSISTENT EXPO
RTERS
-
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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 INSIGHTSDifference 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!