Endogenous financial constraints and innovation

Lahr, Henry and Mina, Andrea (2021). Endogenous financial constraints and innovation. Industrial and Corporate Change, 30(3) pp. 587–621.

DOI: https://doi.org/10.1093/icc/dtaa035

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.

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