HOW TO FI

NANCE

INNOVATIO

N

PERSISTE

NTLY?

A PANEL

DATA STU

DY ON

EXPORTIN

G FIRMS IN

SWEDEN

W R S A 2 0 4 02 1

9

1

Hans Lööf and Pardis Nabavi Centre of Excellence for Science and Innovation StudiesRoyal Institutes of Technology, Stockholm

RESEARCH QUESTION

Our primary interest how a firm's innovative activity across the business cycle varies with

capital structure, export frequency and geographical location.

2

WHY IS THIS IMPORTANT

While the literature on innovative activity shows the advantages with innovation as persistent and stable activity, firms’ access to finance is typically volatile and highly affected by both cash-flow and supply of equity.

3

FORCES BEHIND HETROGENEITYAghion et al. 2008Financial problems gives rise to the pro-cyclical

pattern in innovative investments by constrained firms,

whereas innovation follows a Schumpeterian cycle among non-constrained firms.

Thus, the non-constrained firms can innovate in recessions and increase their competitiveness against other firms.

4

EMPIRICAL APPROACHWe test financial constraints among the exporting firms by

adopting the pecking order approach (Fazzari et al. 1988) behind innovation-cash flow sensitivity.

We use patent application as a proxy for innovation activity. Historically both patent filings as well as R&D have moved

in parallel with the development of GDP, (OECD 2009, Griliches 1995).

Prediction: Only financial constrained firms are sensitive to variation in cash flow

5

CONTRIBUTION 1Innovation have intrinsic properties that

make it difficult to finance externally (Arrow 1962, Hall 2002, Hall and Lerner 2010),

Empirical documentation on financial constraints among innovative firms constitutes still a very limited literature (Brown and Petersen, 2009).

This is particularly true for small firms . In our study, the median firm has than 30 employees and the mean is around 100.

6

CONTRIBUTION 2-3Only recently economist have

started to investigate the links between credit constraints and

- exports (Wagner 2013),- geographical location (Bae et al.

2008), Almazan et al. 2010, Gao et 2011),

7

8

INITIAL INSPECTION: 8,051 UNIQUE FIRMS AND ABOUT 50,000

APPLICATIONS

All exporting firms.

Only persistent exporters

9

RESEARCH STRATEGY (1)

Assumption: Less sensitive to economic schocks (Wagner), but a

difference can be expected (Aghion)

High ratioEquity/total

assets

Quantile 4

Low/medium ratio

Equity/total assets

Quantile 1-3

10

PATENT APPLICATIONS 1997-2010.

Difference: Brown and Petersen (2009)

Access to financial services and other knowledge intensive services

LowMediumHigh

11

PATENT APPLICATIONS 1997-2010.

Difference (Lerner 2009, Backman 2013, Johansson and Lööf 2014))

12(2,3](1,2][1,1]

AccessibilityKlaesson, Johansson,

Olsson approach

(2003)

13

(510,29714](210,510](99.5,210](48,99.5](35,48](22.5,35](15,22.5](11,15](7,11](4,7](2,4](1,2](0,1][0,0]

Total Patent applications-Exporters,1997-2010Geographical distribution of

the 50,000 patent

applications

14

SECOND INSPECTION: SCHUMPETERIAN REGROUPING IN

CITIES

HIGH EQUITY FIRMS

15

THIRD INSPECTION: FINANCIAL CONSTRAINTS IN CITIES

LOW AND MEDIUM EQUITY FIRMS

METHODOLOGICAL APPROACHPanel data, 14 years1,837 unique Exporters (30% persistent)

50% Low access30% Medium Access20 % High Access

Negative Binomial Estimator

16

17TWO SPECIFICATIONS

REGRESSION RESULTS

ALL EXPO

RTERS

-

18

19

20

21

REGRESSION RESULTS

PERSISTENT EXPO

RTERS

-

22

23

24

25

WHAT DID WE KNOW BEFORE

Financial constraints may hamper internal spillovers and knowledge accumulation within firms.

Persistent innovation efforts over the business cycle creates a self-enforcing effect s

26

NEW INSIGHTSDifference between (1) firms depending on their capital

structure also among exporters (selected group of firms)

(2) exporters in general and firms operating persistently on foreign markets year after year

(3) firms located in metropolitan regions and firms located in other places.

27

28

THANK YOU FOR YOUR ATTENTION!