HOW T

O FIN

ANCE

INNOVATI

ON

PERSIS

TENTL

Y?

A PANEL

DATA

STU

DY ON

EXPORTI

NG FIR

MS IN

SWED

EN

WR

SA

20

4 0

2 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.

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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.

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FORCES BEHIND HETROGENEITY

Aghion et al. 2008

Financial 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.

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EMPIRICAL APPROACH

We 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

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CONTRIBUTION 1

Innovation 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.

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CONTRIBUTION 2-3

Only 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),

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

APPLICATIONS

All exporting firms.

Only persistent exporters

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RESEARCH STRATEGY (1)

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

difference can be expected (Aghion)

High ratio

Equity/total assets

Quantile 4

Low/medium ratio

Equity/total assets

Quantile 1-3

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PATENT APPLICATIONS 1997-2010.

Difference: Brown and Petersen (2009)

Access to financial services and other knowledge intensive services

Low

Medium

High

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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)

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(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,1997-2010

Geographical distribution of

the 50,000 patent

applications

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SECOND INSPECTION: SCHUMPETERIAN REGROUPING IN

CITIES

HIGH EQUITY FIRMS

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THIRD INSPECTION: FINANCIAL CONSTRAINTS IN CITIES

LOW AND MEDIUM EQUITY FIRMS

METHODOLOGICAL APPROACH

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

50% Low access30% Medium Access20 % High Access

Negative Binomial Estimator

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17TWO SPECIFICATIONS

REGRESSION R

ESULTS

ALL E

XPORT

ERS

-

18

19

20

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REGRESSION R

ESULTS

PERSIS

TENT

EXPORT

ERS

-

22

23

24

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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

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NEW INSIGHTS

Difference 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.

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THANK YOU FOR YOUR ATTENTION!