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

31 Pages Posted: 8 Apr 2013 Last revised: 9 Mar 2016

See all articles by Daniel Hain

Daniel Hain

IKE, DRUID, Aalborg University

Jesper Christensen

IKE, DRUID, Aalborg University

Date Written: April 6, 2013

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.

Keywords: Financial constraints, financing innovation, asymmetric information

JEL Classification: O31, G23, G24, L25

Suggested Citation

Hain, Daniel and Christensen, Jesper, The Small, the Young and the Innovative. A Panel Data Analysis of Constraints on External Innovation Financing (April 6, 2013). Available at SSRN: https://ssrn.com/abstract=2245997 or http://dx.doi.org/10.2139/ssrn.2245997

Daniel Hain (Contact Author)

IKE, DRUID, Aalborg University ( email )

Fibigerstraede 4, Room 16b
Aalborg, North Jutland DK-9220
Denmark
+45 9400 2724 (Phone)

HOME PAGE: http://vbn.aau.dk/en/persons/daniel-hain%2810bc7542-f8af-4cb9-a1b9-ceb6a999356f%29.html

Jesper Christensen

IKE, DRUID, Aalborg University ( email )

Aalborg, DK-9220
Denmark

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
97
Abstract Views
899
Rank
489,322
PlumX Metrics