NO PRESSURE, NO DIAMONDS? FINANCIAL INTEGRATION, FINANCING CONSTRAINTS AND THEIR QUANTITY-QUALITY EFFECTS ON INVENTIONS
Access the current draft here.
This paper provides the first large-scale quasi-experimental analysis on the effect of financial constraints on inventive output regarding a quantity-quality trade-off. For identification, I exploit exogenous variation in financing constraints induced by a major policy initiative, the Financial Services Action Plan (FSAP), integrating European financial markets. Combining granular patent- and firm-level data, I find that integration boosts borrowing and subsequently spurs patent filings and expenditures but does not enhance patent quality. Instead, effects on various quality characteristics are modest but persistently negative. Results are strongest for ex-ante patenting-intensive firms which is consistent with the idea of decreasing returns to investment. Importantly, positive effects on patent quantity and quality for less patenting-intensive firms highlight the relevance of finance for enabling initial commercialization of inventions.
BORROWING AGAINST THE (UN)KNOWN: THE VALUE OF PATENT PORTFOLIOS
w/ Andrej Gill -- Access the current draft here.
We provide new evidence on the importance of intellectual property for external funding decisions by estimating firm-level patent portfolio values in a novel way. Combining unique institutional features with detailed financial and patent data on European firms, we explore exogenous variation in patent protection to show that valuable patent portfolios lead, on average, to about 17\% higher debt-to-asset-ratios for a large scale of companies comprising several industries, countries and in particular small and medium-sized firms. Effects are strongest for portfolios with a broad technological scope and financially constrained firms. Hence, intellectual property helps to relax financing constraints of innovative-intense firms.
SMALL AND VULNERABLE? FINANCING CONSTRAINTS DURING ECONOMIC CRISES
w/ Pantelis Karapanagiotis & Øivind A. Nilsen -- Access the current draft here.
This study investigates how SMEs and larger firms' financing conditions and real behavior change during periods of severe decline in economic activity. Literature suggests a higher vulnerability of small firms which is constituted in the various proxies of financing constraints which consider size as one key ingredient. Using these measures makes comparing effects on different size categories of firms virtually impossible. By exploiting high quality, proprietary data from official sources on German firms, we are able to study differential effects between small and large firms without depending on size as a measure of financial restrictiveness itself. Our analysis uses the Financial Crisis of 2008 as an exogenous event adversely affecting the banking market. We show that SME are on average more likely to face excess demand for bank loans as compared to large firms. Contrasting theoretical predictions, however, results further suggest that the worsened financing conditions did not affect SME in a disproportionate manner. It is rather the availability of non-bank sources and firms' riskiness determining the degree of financing constraints. Our results suggest that it is more efficient to address the underlying causes of (small) firms' vulnerability during economic slowdowns instead enhancing access to funding for SME in general.
FINANCIAL INTEGRATION, FINANCING CONSTRAINTS, AND INNOVATION IN EUROPE:
IS MORE BETTER?
w/ Uwe Walz & Jan Krzyzanowski -- Access the current draft on request.
A large number of policy initiatives in the European Union and its member states are grounded in the assumption that there is a gap between the demand and supply for financial resources to fund innovations. We approach this assumption by analysing not only how innovations are financed but also whether changes in the availability of funding affect the type and amount of inventions firms actually introduce to the market. In contrast to most existing studies, we focus on firms domiciled in Europe. For this purpose, different European policy initiatives are utilized to analyze the effects of firms’ access to finance on their patenting activities. To provide a comprehensive picture, two complementing initiatives are considered in a European context: i) policies which entailed a negative impact on firms’ access to external sources of finance (EBA capital exercise) as well as ii) those helping to mitigate financing constraints (FSAP). The findings indicate that more finance does not enhance innovative activity per se and less finance is not harmful for firms’ outcomes of their innovative activities by itself. Against the background of our results, we derive several policy recommendations.
Media coverage: here (EPO ARP Programm)
PRELIMINARY RESEARCH PROJECTS
- Venture Capital as Driver for Inventive Activities (w/ A. Gill & N. Gruzdov)
- IP-backed Lending and Economic Resilience
- Constrained but creative? Patenting in the post WW2 German Democratic Republic