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How to Finance Innovation Persistently? A Panel Data Study on Exporting Firms in Sweden. Wrsa204 02 19. Hans Lööf and Pardis Nabavi Centre of Excellence for Science and Innovation Studies Royal Institutes of Technology, Stockholm. Research question.

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how to finance innovation persistently a panel data study on exporting firms in sweden

How to Finance Innovation Persistently?A Panel Data Study on Exporting Firms in Sweden

Wrsa204 02 19

Hans Lööf and Pardis Nabavi

Centre of Excellence for Science and Innovation Studies

Royal Institutes of Technology, Stockholm

research question
Research question
  • Our primary interest how a firm\'s innovative activity across the business cycle varies with
  • capital structure,
  • export frequency and
  • geographical location.
why is this important
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.
forces behind hetrogeneity
FORCES BEHIND HETROGENEITY
  • Aghionet al. 2008
  • Financial 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.
empirical approach
EMPIRICAL APPROACH
  • We 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
contribution 1
CONTRIBUTION 1
  • Innovation 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.
contribution 2 3
CONTRIBUTION 2-3
  • Only recently economist have started to investigate the links between credit constraints and
  • exports (Wagner 2013),
  • geographical location (Bae et al. 2008), Almazanet al. 2010, Gao et 2011),
research strategy 1
RESEARCH STRATEGY (1)
  • All exporting firms.
  • Only persistent exporters

Assumption: Less sensitive to economic schocks (Wagner), but a difference can be expected (Aghion)

patent applications 1997 2010
Patent applications 1997-2010.
  • High ratio
  • Equity/total assets
  • Quantile 4
  • Low/medium ratio
  • Equity/total assets
  • Quantile 1-3

Difference: Brown and Petersen (2009)

patent applications 1997 20101
Patent applications 1997-2010.
  • Access to financial services and other knowledge intensive services
  • Low
  • Medium
  • High

Difference (Lerner 2009, Backman 2013, Johansson and Lööf 2014))

slide14

SECOND INSPECTION:

SCHUMPETERIAN REGROUPING IN CITIES

HIGH EQUITY FIRMS

slide15

THIRD INSPECTION:

FINANCIAL CONSTRAINTS IN CITIES

LOW AND MEDIUM EQUITY FIRMS

methodological approach
METHODOLOGICAL APPROACH
  • Panel data, 14 years
  • 1,837 unique Exporters (30% persistent)
  • 50% Low access
  • 30% Medium Access
  • 20 % High Access
  • Negative Binomial Estimator
what did we know before
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
new insights
NEW INSIGHTS
  • Difference 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.
slide28

THANK YOU

FOR YOUR ATTENTION!

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