The impact of the financial crisis on investments in innovative firms

This paper investigates the impact of the financial crisis on investment decisions in innovative versus non-innovative firms. Firms are defined as being innovative if they have introduced a new product to the market. The empirical test is based on data for the years before and after the recent financial crisis. Probit estimations show that innovative firms are more likely to suffer from the financial crisis and to reduce their investment expenditures in general. To some extent these reductions are due to problems in the acquisition of external capital. Using difference-in-differences methods, it turns out that innovative firms realize the same reduction in growth rates in turnover, but a stronger reduction in investment growth than non-innovative firms

Does Innovation Promote Performance? Evidence from Developed Economies During Crises

This study examines the relationship between firm performance and innovation levels of Information Technology and Communication (ICT), covering 886 firms from five developed countries during the period 2000-2020. The results indicate a positive association between the accessibility and/or the use of ICTs and firms’ innovation performance. More precisely, the positive relationship between ICTs and firm performance is highly pronounced in small-sized firms and strongly related to R&D decisions in large firms. However, during the recession period, the relationship between performance and innovation level is affected differently by the financial crisis, leading to contradictory results. Interestingly, the pandemic crisis has had a positive impact on the firm’s performance-innovation relationship. Despite high rates of ICT diffusion, the results of performance and innovation cannot be considered universal due to the significant differences between countries. Our findings may contribute to the literature by highlighting how variations in ICT impact firms’ innovation performance across countries, particularly during crises. Keywords: Information and Communication Technology, Performance, Innovation, Financial Crisis, Pandemic Crisis. DOI: 10.7176/RJFA/14-19-03 Publication date: November 30th 202

Low‐carbon transition risks for finance

The transition to a low‐carbon economy will entail a large‐scale structural change. Some industries will have to expand their relative economic weight, while other industries, especially those directly linked to fossil fuel production and consumption, will have to decline. Such a systemic shift may have major repercussions on the stability of financial systems, via abrupt asset revaluations, defaults on debt, and the creation of bubbles in rising industries. Studies on previous industrial transitions have shed light on the financial transition risks originating from rapidly rising “sunrise” industries. In contrast, a similar conceptual understanding of risks from declining “sunset” industries is currently lacking. We substantiate this claim with a critical review of the conceptual and historical literature, which also shows that most literature either examines structural change in the real economy, or risks to financial stability, but rarely both together. We contribute to filling this research gap by developing a consistent theoretical framework of the drivers, transmission channels, and impacts of the phase‐out of carbon‐intensive industries on the financial system and on the feedback from the financial system into the rest of the economy. We also review the state of play of policy aiming to protect the financial system from transition risks and spell out research implications

Economics of innovation, productivity and growth

This doctoral research studies the deeper drivers of innovation, productivity and growth as well as the interlinkages between these three aspects. The thesis is organized as follows: Chapter 1 places the motivation of this research within the context of the wider body of research in the fields of economics of innovation, productivity and growth. It sets out the main aspirations of this research, followed by a brief outline of the research. Chapter 2 explores a wider set of innovation drivers driving firm growth, combining analysis of formal R&D processes promoted by growth theories alongside informal R&D linkages emphasized by national systems of innovation (NSI). The main goal is to distinguish primary drivers from secondary drivers, by examining the differences in key forces driving firm revenue levels versus those driving firm revenue growth. This hypothesis is tested through a dataset of 27 European economies over the period of 1996-2010, controlling also for globalization and industrial organizational drivers. Findings reveal that informal R&D linkages appear to be the primary drivers needed to establish firm revenue levels, while formal R&D investment is needed as a secondary driver to spur firm revenue growth. Chapter 3 delves into the structural drivers of productivity. Using an adaptation of the economic development framework, the Lewis model, this study proposes that country level labour productivity may be driven structurally by the movement of resources from smaller firm to larger firm-size structures. To enable this analysis, a new database is built up at sector level for the 32 European economies between 2000-2012. The contribution of firm-sizes to country productivity is measured through isolating classifications of small, medium and large firms, alongside control variables capturing growth theory drivers, globalization, credit conditions and monetary lending policies. Large firms are indeed found to be the most significant firm structure shaping country labour productivity. Chapter 4 examines whether firm independence, previously not considered critical for firm growth, may indeed be an important criterion to enable scale up of innovative firms into successful frontier large firms. To shed light on the role of independence, the study examines the drivers of firm growth and the policy tools used to support firm growth – with innovative independent firms separately assessed from overall innovative firms. Using firm level dataset for all UK sectors between 2006-2016, policy tax and financing tools supporting start-up, growth and merger activity are examined alongside growth theory drivers, globalization and monetary lending policy. The empirical analysis reveals that independent firms reap much higher growth, with age of independence delivering a bonus growth dividend. Finally, Chapter 5 summarizes the findings of this thesis, listing the limitations of the analysis alongside future potential areas of research