Do Financial Constraints Reduce Process Innovation? Evidence from Australian Firms

Roche, Siddarth;Sun, Sizhong;Welters, Riccardo

Abstract

Accessing external finance for innovation is difficult. We study the effect of financial constraints on the probability of conducting process innovation, while also considering the role of past experience. We show a firm’s optimal process innovation decision is a function of its previous decision and financial constraints, which naturally leads to a set of population moments for empirical testing with Australian microdata from 2006 to 2018. We find that if a firm did not conduct process innovation previously, financial constraints reduce its probability of process innovation by around 10 per cent. Whereas with previous process innovation, financial constraints reduce the probability by around 12 per cent.

Journal

Economic Record

Publication Name

N/A

Volume

ISBN/ISSN

1475-4932

Edition

N/A

Issue

323

Pages Count

Location

N/A

Publisher

Economic Society of Australia

Publisher Url

N/A

Publisher Location

N/A

Publish Date

N/A

Url

N/A

Date

N/A

EISSN

N/A

DOI

10.1111/1475-4932.12703