The impact of financial constraints on innovation : evidence from French manufacturing firms

This paper examines the impact of financial constraints on innovation for established firms. We make use of a qualitative indicator of the existence of financial constraints based on firms' own assessment obtained thanks to a French specific survey. Thus, the existence of financial constraints for innovation is measured by a direct indicator whereas previous studies rely on proxies (like the cash-flow sensitivity) subject to interpretation problems. The descriptive analysis of balance sheet structures reveals that innovative firms without financial constraints have the best profile in terms of economic performances, financing structure and risk whereas non innovative firms facing financial constraints have the poorest profile. From the econometric point of view, the probabilities of implementing innovative projects and of facing financial constraints are simultaneously estimated by a recursive bivariate probit model to account for the endogeneity of the financial constraint variable. We then find that firms having innovative projects face financial constraints that significantly reduce the likelihood that they implement their innovative investment. The probability of facing financing constraints is explained by firms' ex ante financing structure and economic performances, by industry sector and it decreases with firms' size.Innovation, financing constraints, recursive bivariate probit.

Financing constraints and a firm's decision and ability to innovate: establishing direct and reverse effects

The paper analyzes the existence and impact of …nancing constraints as a possibly serious obstacle to innovation by …rms. Direct measures of …nancing constraints are employed using survey data collected by the Banque de France and Eurostat, which overcomes the problems with the traditional approach of trying to deduce indirectly the existence and impact of …nancing constraints through the signi…cance of …rm wealth variables. The importance of using direct as opposed to indirect measures of …nancing constraints has been illustrated recently by two articles in this Journal (Moyen (2004) using a synthetic sample methodology, and Hennessy and Whited (2007) through the method of simulated moments). The econometric framework we employ in our study is the simultaneous bivariate probit with mutual endogeneity of direct indicators of …nancial constraints and innovation decisions by …rms. The pa- per discusses the important identi…cation issue of coherency conditions in such LDV models with endogeneity and ‡exible temporal and contemporaneous correlations in the unobservable error terms. Our novel methods for establishing coherency condi- tions allow us for the …rst time to estimate models hitherto classi…ed as incoherent through the use of prior sign restrictions on model parameters. We are thus able to quantify the interaction between …nancing constraints and a …rm’s decision and ability to innovate without forcing the econometric models to be recursive. Hence, we obtain direct as well as reverse interaction e¤ects, leading us to conclude that binding …nancing constraints discourage innovation and at the same time innovative …rms are more likely to face binding …nancing constraints

The impact of financial constraints on innovation: evidence from French manufacturing firms

URL des Cahiers : https://halshs.archives-ouvertes.fr/CAHIERS-MSECahiers de la Maison des Sciences Economiques 2006.42 - ISSN 1624-0340This paper examines the impact of financial constraints on innovation for established firms. We make use of a qualitative indicator of the existence of financial constraints based on firms' own assessment obtained thanks to a French specific survey. Thus, the existence of financial constraints for innovation is measured by a direct indicator whereas previous studies rely on proxies (like the cash-flow sensitivity) subject to interpretation problems. The descriptive analysis of balance sheet structures reveals that innovative firms without financial constraints have the best profile in terms of economic performances, financing structure and risk whereas non innovative firms facing financial constraints have the poorest profile. From the econometric point of view, the probabilities of implementing innovative projects and of facing financial constraints are simultaneously estimated by a recursive bivariate probit model to account for the endogeneity of the financial constraint variable. We then find that firms having innovative projects face financial constraints that significantly reduce the likelihood that they implement their innovative investment. The probability of facing financing constraints is explained by firms' ex ante financing structure and economic performances, by industry sector and it decreases with firms' size.Cet article étudie l'effet de la présence des contraintes financières sur l'innovation au sein de firmes établies. Nous nous appuyons sur un indicateur qualitatif de la présence de contraintes financières obtenu auprès des firmes elles-mêmes par le biais d'une enquête spécifique sur le financement de l'innovation (FIT, SESSI). La présence de contraintes financières est donc mesurée ici par un indicateur direct alors que les travaux antérieurs s'appuyent sur des proxies, en particulier sur la sensibilité de l'investissement au cash-flow. L'analyse descriptive de la structure des bilans met en évidence que les firmes innovantes non contraintes financièrement présentent globalement le meilleur profil en termes de performances économiques, structures de financement et risque. A contrario, ces indicateurs se révèlent les moins bons pour les firmes contraintes financièrement et qui n'ont pas entrepris de projet innovant. Du point de vue économétrique, la probabilité d'entreprendre un projet innovant et celle de faire face à des contraintes financières pour l'innovation sont estimées simultanément par un probit bivarié récursif afin de tenir compte de l'endogénéité de la variable de contrainte financière. Nous trouvons alors que les firmes souhaitant innover rencontrent des contraintes financières qui diminuent significativement leur probabilité d'entreprendre leurs projets innovants. La probabilité d'être confronté à des contraintes financières pour l'innovation est expliquée par les performances économiques et la structure de financement ex ante de la firme et elle décroit avec la taille de la firme

Wealth Effects on Consumption across the Wealth Distribution: Empirical Evidence

This paper studies the heterogeneity of the marginal propensity to consume out of wealth using French household surveys. We find decreasing marginal propensity to consume out of wealth across the wealth distribution for all net wealth components. The marginal propensity to consume out of financial assets tends to be higher compared with the effect of housing assets, except in the top of the wealth distribution. Consumption is less sensitive to the value of the main residence than to other housing assets. We also investigate the heterogeneity arising from indebtedness and from the role of housing assets as collateral

Wealth and income in the euro area: Heterogeneity in households' behaviours?

This article aims at linking the household wealth and income distributions for 15 European countries using the Household Finance and Consumption Survey. We study the role played by the household’s location in the income distributions in determining its location in the wealth distribution. A generalized ordered probit model is estimated to explain the role played by the position in the income distribution and by intergenerational transfers on the probability to be in a given wealth decile in each country. As expected, we obtain that a rise in income or having received gifts and inheritances increases the probability to be in higher wealth deciles. Most importantly, we find evidences of heterogeneity in accumulation behaviours along the wealth distribution in France, Finland, Germany, Greece, Italy, Slovakia and Spain. The relative effect of income or inheritance on wealth accumulation varies, depending on the rank of the households in the wealth distribution. We also highlight some specificity in the top of the wealth distribution

Monetary policy and bank lending in France: are there asymmetries?

This paper aims at providing some empirical evidence about the impact of monetary policy on bank lending at the microeconomic level. We estimate a model close to that proposed by Kashyap and Stein (2000) using a panel data set comprising 312 banks observed quarterly over the period 1993-2000. We find that bank lending decreases after a monetary policy tightening. Moreover, as in several other Euro area economies, banks' liquidity appears to impact significantly on their lending behavio

Novel approaches to coherency conditions in dynamic LDV models: quantifying financing constraints and a firm's decision and ability to innovate

We develop novel methods for establishing coherency conditions in Static and Dynamic Limited Dependent Variables (LDV) Models. We propose estimation strategies based on Conditional Maximum Likelihood Estimation for simultaneous LDV models without imposing recursivity. Monte-Carlo experiments confirm substantive Mean-Squared-Error improvements of our approach over other estimators. We analyse the impact of financing constraints on innovation: ceteris paribus, a firm facing bindingfinance constraints is substantially less likely to undertake innovation, while the probability that a firm encounters a binding finance constraint more than doubles if the firm is innovative. A strong role for state dependence in dynamic versions of our models is also established

Le financement des entreprises innovantes

This thesis aims at analysing the existence and impact of financing constraints as possible obstacle to innovation by firms.First, we explore the existence of specific financing constraints for innovative firms. To this end, we specify a structural model defining the probability that a firm contracts new bank loans. The estimates shows that innovative firms have a lower probability, other thing equal, to contract new bank loans because of a higher latent interest rate and a stronger sensitivity of this interest rate to the borrowed amount.Then, the impact of financial constraints on innovation is studied. Whereas previous studies have examined the effect of financial constraints by estimating the R&D sensitivity to cash-flow, here we use a direct measure of the existence of financial constraint given by a survey (FIT, Sessi). We take into account the endogeneity of this indicator and we find that the probability to engage into innovative activities is significantly reduced by the existence of financing constraints.Finally, we study the financing decision of young innovative companies. A simple theoretical model is proposed to established the best way to finance young innovative firms according to their features (collateral, size of the project, risk) : bank loans, venture capital or internal finance. Then, this model is calibrated with the available data.Cette thèse a pour objectif de contribuer à la compréhension des problèmes de financement des entreprises liés à leur comportement innovant.Le premier chapitre examine si les entreprises engagées dans des activités innovantes rencontrent des contraintes de financement qui leur sont spécifiques. Nous proposons un modèle structurel définissant la probabilité qu'une entreprise contracte de nouveaux emprunts bancaires. Les estimations menées à partir des données de la Centrale de Bilans de la Banque de France révèlent que les entreprises engagées dans des activités innovantes ont une probabilité plus faible de contracter de nouveaux emprunts bancaires, toutes choses égales par ailleurs, du fait d'un taux d'intérêt latent plus élevé et d'une sensibilité plus forte de ce taux au montant emprunté.Le deuxième chapitre étudie l'impact des difficultés de financement sur le comportement innovant des entreprises à l'aide d'une mesure directe de la présence de contraintes financières fournie par l'enquête FIT (Sessi). En tenant compte de l'endogénéité de cet indicateur, nous trouvons que les entreprises souhaitant innover rencontrent des contraintes financières qui diminuent significativement la probabilité qu'elles le fassent effectivement.Enfin, le troisième chapitre s'intéresse plus spécifiquement au mode de financement des projets innovants des jeunes entreprises innovantes. Il propose un modèle simple qui permet d'établir, en fonction des caractéristiques de l'entreprise et de son projet innovant, le mode de financement qui lui est adapté : prêts bancaires, apports de fonds propres du capital-risque ou financement interne. Le modèle est ensuite simulé à partir des informations empiriques disponibles

Quel mode de financement pour les jeunes entreprises innovantes. Financement interne, prêt bancaire, ou capital-risque ?

This article aims at determining the optimal external financing for young innovative firms. In our model, the firm may use banking loan or venture capital?s investments. We assume that there is an adverse selection problem between the firm and the bank whereas the venture capitalist has an expertise which allows to identify the risk of the innovative project. Depending on the firm?s characteristics, the optimal financing source is: i) equity funding from venture capital, ii) banking loans, or iii) no external finance. The simulations of the model are consistent with the empirical features of the financing of innovation in start-ups. Classification JEL : G24