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Financial constraints for investors and the speed of adaptation: Are innovators special?

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  • von Kalckreuth, Ulf
Abstract
This paper uses a large panel of survey data on German firms in the manufacturing sector to analyse the effects of financing constraints for investors in general and for innovative firms in particular. Survey data with information on financing conditions are potentially a valuable tool that avoids the Kaplan and Zingales (1997) critique on the use of cash flow sensitivities for the identification of financial constraints. Using the autumn and the spring wave of the Ifo Institute?s Investment Tests (IT) during the years 1988-1998, we create a panel with information on investment, innovation activity and financing conditions. Financial constraints affect the distribution of investment over time in a fundamental way. Following a shock, the adjustment of a constrained firm is slower and less spiky. After developing this argument theoretically building on Schworm?s (1980) model of optimal investment under financial constraints, we use it to test the empirical content of our survey data by means of an error correction model of investment activity. Our preliminary results indicate that constrained firms in fact do react more slowly, but that innovative firms are not especially affected. This supports an argument made by Bond, Harhoff and van Reenen (1999): In equilibrium, innovative activity will come from a group of firms that is self-selected on the basis of their being able to overcome the special difficulties of financing innovation.

Suggested Citation

  • von Kalckreuth, Ulf, 2004. "Financial constraints for investors and the speed of adaptation: Are innovators special?," Discussion Paper Series 1: Economic Studies 2004,20, Deutsche Bundesbank.
    • Handle: RePEc:zbw:bubdp1:2165
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    File URL: https://www.econstor.eu/bitstream/10419/19487/1/200420dkp.pdf
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    Citations

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    Cited by:

    1. Frédérique Savignac, 2006. "The impact of financial constraints on innovation: evidence from French manufacturing firms," Post-Print halshs-00115717, HAL.
    2. Silvia Magri, 2009. "The financing of small innovative firms: the Italian case," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 18(2), pages 181-204.
    3. Klaus Abberger & Sascha Becker & Barbara Hofmann & Klaus Wohlrabe, 2007. "Mikrodaten im ifo Institut für Wirtschaftsforschung – Bestand, Verwendung und Zugang," AStA Wirtschafts- und Sozialstatistisches Archiv, Springer;Deutsche Statistische Gesellschaft - German Statistical Society, vol. 1(1), pages 27-42, June.
    4. Strotmann, Harald & Döpke, Jörg & Buch, Claudia M., 2006. "Does trade openness increase firm-level volatility?," Discussion Paper Series 1: Economic Studies 2006,40, Deutsche Bundesbank.
    5. von Kalckreuth, Ulf, 2008. "Financing constraints, firm level adjustment of capital and aggregate implications," Discussion Paper Series 1: Economic Studies 2008,11, Deutsche Bundesbank.
    6. repec:zbw:iamodp:91954 is not listed on IDEAS
    7. Cechura, Lukas, 2008. "Investment, Credit Constraints And Public Policy In A Neoclassical Adjustment Cost Framework," IAMO Discussion Papers 91954, Institute of Agricultural Development in Transition Economies (IAMO).
    8. Schauer, Catharina & Elsas, Ralf & Breitkopf, Nikolas, 2019. "A new measure of financial constraints applicable to private and public firms," Journal of Banking & Finance, Elsevier, vol. 101(C), pages 270-295.
    9. Audretsch, David B. & Weigand, Jurgen, 2005. "Do knowledge conditions make a difference?: Investment, finance and ownership in German industries," Research Policy, Elsevier, vol. 34(5), pages 595-613, June.
    10. Ulf Von Kalckreuth, 2006. "Financial Constraints and Capacity Adjustment: Evidence from a Large Panel of Survey Data," Economica, London School of Economics and Political Science, vol. 73(292), pages 691-724, November.
    11. Čechu­ra, Lukas, 2008. "Investment, credit constraints and public policy in a neoclassical adjustment cost framework [Investitionen, Kreditrationierung und Agrarpolitik in einem dynamischen neoklassischen Modell mit Anpas," IAMO Discussion Papers 115, Leibniz Institute of Agricultural Development in Transition Economies (IAMO).

    More about this item

    Keywords

    Financial constraints; investment; innovation; dynamic panel data models;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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