The Small, the Young and the Innovative: A Panel Data Analysis of Constraints on External Innovation Financing

Research output: Contribution to conference without publisher/journalPaper without publisher/journalResearchpeer-review

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Abstract

This article investigates how access to external financing for innovation activities is affected by firm-specific structural, behavioral and outcome characteristics.  External financing represents a critical factor in determining industrial evolution and technical change as well as firm's ability to survive, grow, and engage in innovative activities. Some characteristics of firms particularly associated with innovative and entrepreneurial ventures driving technological change are said to cause information asymmetries between financiers and finance seekers, making them less likely raise necessary external capital to fund innovation projects. Yet, there is little known about how different combinations of these characteristics affects their access to external financing and how contextual factors matter. Deploying a two-stage Heckman probit model on a panel data set spanning the period 2000-2013 and covering 1,169 Danish firms, we test hypotheses derived from the literature regarding the impacts of firms structural, behavioral and outcome characteristics on the firm's likelihood to get constrained in their access to external innovation finance. In line with earlier research we find that indeed the type of innovation matters for the access to external finance, but in a more nuanced way than generally portrayed. While incremental innovation activities have little negative effect on the access to external finance, radical innovation activities tend to be penalized by capital markets.
Original languageEnglish
Publication dateJun 2013
Number of pages31
DOIs
Publication statusPublished - Jun 2013
EventDRUID summer Conference 3013 - EASADE Business School, Barcelona, Spain
Duration: 17 Jun 201319 Jun 2013
Conference number: 35th

Conference

ConferenceDRUID summer Conference 3013
Number35th
LocationEASADE Business School
CountrySpain
CityBarcelona
Period17/06/201319/06/2013

Fingerprint

Financing
Panel data analysis
Innovation
External financing
Innovation activities
External finance
Finance
Panel data
Incremental innovation
Technical change
Probit model
Radical innovation
Contextual factors
Critical factors
Capital markets
Heckman
Innovative activity
Information asymmetry
Entrepreneurial ventures
Hypothesis test

Keywords

  • Innovation Finance
  • Financial Constraints
  • TBSF
  • Asymmetric Information

Cite this

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title = "The Small, the Young and the Innovative: A Panel Data Analysis of Constraints on External Innovation Financing",
abstract = "This article investigates how access to external financing for innovation activities is affected by firm-specific structural, behavioral and outcome characteristics.  External financing represents a critical factor in determining industrial evolution and technical change as well as firm's ability to survive, grow, and engage in innovative activities. Some characteristics of firms particularly associated with innovative and entrepreneurial ventures driving technological change are said to cause information asymmetries between financiers and finance seekers, making them less likely raise necessary external capital to fund innovation projects. Yet, there is little known about how different combinations of these characteristics affects their access to external financing and how contextual factors matter. Deploying a two-stage Heckman probit model on a panel data set spanning the period 2000-2013 and covering 1,169 Danish firms, we test hypotheses derived from the literature regarding the impacts of firms structural, behavioral and outcome characteristics on the firm's likelihood to get constrained in their access to external innovation finance. In line with earlier research we find that indeed the type of innovation matters for the access to external finance, but in a more nuanced way than generally portrayed. While incremental innovation activities have little negative effect on the access to external finance, radical innovation activities tend to be penalized by capital markets.",
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The Small, the Young and the Innovative : A Panel Data Analysis of Constraints on External Innovation Financing. / Hain, Daniel S.; Christensen, Jesper Lindgaard.

2013. Paper presented at DRUID summer Conference 3013, Barcelona, Spain.

Research output: Contribution to conference without publisher/journalPaper without publisher/journalResearchpeer-review

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AB - This article investigates how access to external financing for innovation activities is affected by firm-specific structural, behavioral and outcome characteristics.  External financing represents a critical factor in determining industrial evolution and technical change as well as firm's ability to survive, grow, and engage in innovative activities. Some characteristics of firms particularly associated with innovative and entrepreneurial ventures driving technological change are said to cause information asymmetries between financiers and finance seekers, making them less likely raise necessary external capital to fund innovation projects. Yet, there is little known about how different combinations of these characteristics affects their access to external financing and how contextual factors matter. Deploying a two-stage Heckman probit model on a panel data set spanning the period 2000-2013 and covering 1,169 Danish firms, we test hypotheses derived from the literature regarding the impacts of firms structural, behavioral and outcome characteristics on the firm's likelihood to get constrained in their access to external innovation finance. In line with earlier research we find that indeed the type of innovation matters for the access to external finance, but in a more nuanced way than generally portrayed. While incremental innovation activities have little negative effect on the access to external finance, radical innovation activities tend to be penalized by capital markets.

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