Innovative investments, financial imperfections, and the Italian business cycle

Bragoli, Daniela; Cortelezzi, Flavia; Marseguerra, Giovanni; Rigon, Massimiliano

doi:10.1093/oep/gpz017

Cited by 2 publications

(2 citation statements)

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“…Therefore, the resources dedicated to innovation activities will tend to be more procyclical among financially constrained firms that among the financially unconstrained ones. The existing evidence supports this hypothesis, with French (Aghion et al , 2012), Slovenian (Bovha-Padilla et al , 2009), Italia (Bragoli et al , 2020) and Spanish (López-García et al , 2012) firm-level data, and with data from high-tech firms in the USA (Kabukcuoglu, 2017).…”

Section: Literature Reviewmentioning

confidence: 73%

“…Under the resource availability view, information asymmetries between managers and external investors will increase the costs of external finance and firms depend on internally generated funds to finance their innovation activity (Hall, 1992, 2002; Himmelberg and Petersen, 1994; Rafferty and Funk, 2008). The availability of internally generated funds will be greater in expansion than in recession, and so the resources dedicated to innovation will be procyclical (Wälde and Woitek, 2004; Barlevy, 2007; Ouyang, 2011; Fabrizio and Tsolomon, 2014; Archibugi et al , 2013; Kang et al , 2017; Sedgley et al , 2018; Bragoli et al , 2020; Nemlioglu and Mallick, 2020). The empirical evidence supports the procyclical evolution of innovation output with firm-level data (Geroski and Walters, 1995; Giedeman et al , 2006; Martinsson and Lf, 2009; Hingley and Park, 2017), although the results can differ, depending on whether the innovation output is a result of product or process innovations (Nickell et al , 2001; Berchicci et al , 2013; Hud and Rammer, 2015).…”

Section: Literature Reviewmentioning

confidence: 99%

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Why firms stop introducing innovations in the great recession: aggregate demand, financial constraints and risk

Ortiz

Salas‐Fumás

2021

JSTPM

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Purpose With Spanish Community Innovation Survey data, this paper tests two main hypotheses as explanation of the fall in business innovation output in the Great Recession: the aggregate demand effect (firms have lower propensity to initiate innovation projects in recession than in contraction from demand-pull and profit expectations effects) and the risk effect (a greater proportion of the initiated projects fail in recessions than in expansions). Design/methodology/approach The research methodology consists on first modelling the decision by firms to initiate innovation projects in t or not (probit model), and, second, modelling the outcomes, success or failure in t + 1 of firms that decide to initiate (Heckman model). Findings The empirical results support the two hypotheses. They also indicate that the sensitivity of the decision to initiate innovation projects to the aggregate demand is more pronounced among financially constrained firms than among unconstrained ones, while the risk effect appears to be independent of the financial situation of firms. Research limitations/implications The results of the research are limited by not being able to follow up individual innovation projects, and by not having available a more representative sample of firms where non-innovators and potential innovators are represented (now is biased toward potential innovators). Practical implications The results highlight the importance of macroeconomic stability for sustained business innovation output over time and calls managers’ attention in better management of innovation risk. Social implications The results of the paper recommend macroeconomic polies aimed at the stabilization of aggregate demand and smoothing the business cycle, as a way to contribute to the stabilization of the growth of innovation output over time. Monetary and fiscal policies that smooth the business cycle will then have significant effects in the stabilization of innovation output and, in turn, in the reduction of volatility of economic growth over time. Increasing the direct public financial aid to undertake innovation projects in recession periods will not have the same innovation output stabilization effect than the stabilization of the aggregate demand. The reason is that, as the paper points out, the innovation output of financially unconstrained firms is also affected negatively by the contraction of aggregate demand in recession periods. Originality/value This paper is the first one to investigate the differences in business innovation outputs in expansions and recessions, separating the aggregate demand and the risk effect that the organisation for economic co-operation and development identifies as main determinants of the fall in innovation output during the Great Recession. The decomposition of firms’ innovation output in the decision to initiate innovation projects and the likelihood that those initiated succeed is also new in the literature.

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Section: Literature Reviewmentioning

confidence: 73%

Section: Literature Reviewmentioning

confidence: 99%

Why firms stop introducing innovations in the great recession: aggregate demand, financial constraints and risk

Ortiz

Salas‐Fumás

2021

JSTPM

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Efectos de la estructura de capital en la innovación

Cuevas-Vargas

Cortés-Palacios

2020

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El objetivo del artículo es analizar los efectos de la estructura de capital en la innovación de las pequeñas y medianas empresas (Pymes) de un país emergente. Para ello se realizó una investigación empírica con un enfoque cuantitativo, de tipo explicativo y corte transversal a 230 pymes manufactureras mexicanas, usando el método de ecuaciones estructurales por mínimos cuadrados parciales (PLS-SEM). Los resultados revelan que las fuentes de financiamiento internas y externas influyen positiva y significativa en la innovación. Una limitación del estudio es que los resultados se delimitan a Pymes manufactureras de Aguascalientes, sugiriendo estudios que consideren otros sectores. La originalidad del trabajo consiste en la metodología utilizada, la cual permitió identificar la importancia y desempeño que tienen las fuentes de financiamiento en la innovación de Pymes de economía emergente. Los hallazgos demuestran que el financiamiento interno tuvo un mayor impacto significativo en la innovación de este tipo de empresas.

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Innovative investments, financial imperfections, and the Italian business cycle

Cited by 2 publications

References 45 publications

Why firms stop introducing innovations in the great recession: aggregate demand, financial constraints and risk

Why firms stop introducing innovations in the great recession: aggregate demand, financial constraints and risk

Efectos de la estructura de capital en la innovación

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