Do Financial Constraints Hold Back Innovation and Growth? Evidence on the Role of Public Policy

Posted: 4 Nov 2009

See all articles by Otto Toivanen

Otto Toivanen

Aalto University - Department of Economics; KU Leuven - Faculty of Business and Economics (FBE); CEPR; Helsinki Center of Economic Research (HECER)

Ari Hyytinen

University of Jyväskylä

Date Written: 2005

Abstract

Building on a 1998 study by Rajan and Zingales, this paperexamines the impact of both general and government financial support on privateR&D rates and on firm expansion.A description of the theoreticalbackground for this research is provided with an emphasis on the subsidizationof small- and medium-sized enterprises. A survey was administered to for-profit, non-financial, and non-farmcorporations in Finland by the Research Institute of the Finnish Economy(ETLA).The descriptions of the various measures utilized in the study areprovided.Also provided is a description of the results of the dataanalysis, including the economic significance of the findings and therobustness of the tests. The findings indicate that industries that are dependent on externalfinancing are aided at rates disproportionate to other industryfirms.Firms that depend more heavily on external financing tend to investin more R&D and are more growth oriented when more government funding isavailable.(AKP)

Keywords: Research Institute of the Finnish Economy (ETLA), Innovation process, Finance, Financial constraints, Access to capital, Firm growth, Financial markets, Public policy, Federal aid, R&D

Suggested Citation

Toivanen, Otto and Hyytinen, Ari, Do Financial Constraints Hold Back Innovation and Growth? Evidence on the Role of Public Policy (2005). University of Illinois at Urbana-Champaign's Academy for Entrepreneurial Leadership Historical Research Reference in Entrepreneurship, Available at SSRN: https://ssrn.com/abstract=1498276

Otto Toivanen

Aalto University - Department of Economics ( email )

PO Box 1210
FI-00101 Helsinki
Finland

KU Leuven - Faculty of Business and Economics (FBE) ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

CEPR ( email )

London
United Kingdom

Helsinki Center of Economic Research (HECER)

FI-00014 Helsinki
Finland

Ari Hyytinen (Contact Author)

University of Jyväskylä ( email )

PO Box 35
Jyväskylä, 40014
Finland

HOME PAGE: http://www.jyu.fi

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