The influence of industry downturns on the propensity of product versus process innovation

This article sheds light on how industry fluctuations affect firms' propensity to innovate. We test two seemingly conflicting arguments that suggest how firms are more or less inclined to engage in innovation activities during industry fluctuations. By studying a panel of 622 Italian manufacturing firms during the period 1995-2003, we show how differentiating between product and process innovation may help reconcile the theory of opportunity cost of innovation with the cash-flow effect argument. We find that industry downturns are related to product and process innovation in different ways: firms tend to invest in product innovation rather than process innovation in downturns. The findings have implications for both theory (showing when the opportunity cost of innovation dominates) and research design (showing the importance of both the input and output measures in innovation studies and how they might influence the results

The influence of industry downturns on the propensity of product versus process innovation

This article sheds light on how industry fluctuations affect firms' propensity to innovate. We test two seemingly conflicting arguments that suggest how firms are more or less inclined to engage in innovation activities during industry fluctuations. By studying a panel of 622 Italian manufacturing firms during the period 1995-2003, we show how differentiating between product and process innovation may help reconcile the theory of opportunity cost of innovation with the cash-flow effect argument. We find that industry downturns are related to product and process innovation in different ways: firms tend to invest in product innovation rather than process innovation in downturns. The findings have implications for both theory (showing when the opportunity cost of innovation dominates) and research design (showing the importance of both the input and output measures in innovation studies and how they might influence the results)

The link between innovation and finance:evidence from survey data

This thesis comprises three essays on the relationship between innovation and finance. Although previous research has acknowledged the multi-faceted nature of innovation, this thesis unpacks its constituent elements, compares alternative drivers of innovation — focusing on the role of financial variables —, and explores when each of these drivers is important relative to the others. Evidence is based on survey data on Italian manufacturing firms over the years 1995-2003. The main contribution of this dissertation is to show how innovation at the firm level varies across different dimensions, documenting several robust empirical regularities, which must be accounted for. The first essay explores the determinants of various characteristics on the propensity to innovate in the Italian manufacturing sector. First, we concentrate on firms characteristics, and include in the study age of firm, size of firm, export shares of revenues and group membership. Second, we examine industry characteristics, such as type of industry in terms of technology level and market concentration. We also test the impact of characteristics of the firm's geographical area, including an indicator of financial development for the firm region. We finally extend our model including financial variables at the firm level in order to evaluate the association between profitability & risk and innovation. The second essay further examines the determinants of innovation, focusing on why firms develop product innovations rather than process innovation, or product and process innovations simultaneously. Empirical studies have highlighted the different impact of product and process innovation on various factors (such as, for example, international competitiveness, the level of employment and the types of skills used, and on the profit rate of firms). However, little is known from either a theoretical or an empirical point of view about the determinants of these different types of innovation. The third essay examines the question of whether access to credit is empirically more difficult for innovative firms than for those undertaking traditional investment projects. The idea that market financing of innovative projects is likely to encounter severe obstacles is not new. Indeed, it dates back at least to Schumpeter's defence of monopoly power since it not only guarantees that innovative firms can internalise the benefits of their innovations, but also provides funding for future innovative projects. Testing this proposition requires information on the innovative content of a given firm and on the limits to borrowing it encounters. Using the above mentioned survey data, we are able to identify credit constrained firms and use this information to make inferences on bank's lending strategies towards firms whose investment projects differ according to expected return and riskiness

Do Internet Activities Add Value? Evidence from the Traditional Banks

Internet, Banks, Value, Technology, Risk-return,

Applying Credit Risk Models to Deposit Insurance Pricing: Empirical Evidence From . . .

The Federal Deposit Insurance Corporation (FDIC) has recently tested credit risk measurement models used by large international banks to measure the risk of their credit portfolios in order to measure the risk of default of its portfolio of insured banks. Using both balance sheet and equity market data for a sample of 15 large Italian banks, this study applies a credit value at risk model to estimate both individual and portfolio default risks for the Fondo Interbancario di Tutela dei Depositi (FITD), the Italian deposit insurance fund. The empirical analysis allows us to estimate the loss probability distribution of the FITD exposures which in turn can be used to: (i) evaluate the FITD fund adequacy; (ii) estimate the marginal contribution to the whole portfolio risk of an individual insured bank; (iii) test an alternative risk-.adjusted deposit insurance pricing scheme to the more traditional one based on option pricing models. Two main results emerge from the empirical analysis. First, the estimated total risk-based premium for the sample banks is in line with the current practice of the FITD and with its available callable capital. Second, significant differences appear to exist in the pricing of the deposit insurance service for the different sample banks. Such differences reflect both differences in the banks' individual risk profiles and the higher impact that the exposures to larger banks present on the risk profile of the FITD portfolio