A major research area of the Innovation group is the financial constraints for innovation in firms. While a lot has been written about financial constraints in the literature, there is still ample room for further research. The innovation group will focus on two aspects in this field and both are of methodological nature.
First, scholars have largely overlooked that R&D investment is econometrically subject to a censored distribution if some firms are constrained in their investment. The Innovation Survey identifies constraints by asking firms for various types of innovation obstacles, among which financial constraints. This survey evidence can be combined with econometric methods for dealing with censored distributions. Such applications will, for the first time, allow an econometrically sound estimate of the extent of financial constraints in the economy. It will thus be possible to inform policy about the gap between the status quo with respect to the innovation potential of the economy, and a hypothetical first-best status where financing constraints are absent. This information might have direct implications for innovation policy in Flanders.
The second focus will be on Intellectual Property Rights (IPRs), especially patents, and how these may mitigate financing constraints. Initial studies have been conducted by the Innovation group on this topic. However, the researchers relied on correlations between estimations of financial constraints and firms’ patent portfolios. With newly available data, direct measures on patents that have been used as collateral in loan contracts are available. Such new data allow to estimate directly possible investments effects of such loans that were issued because the corresponding banks accepted that firms pledge patents. Even more directly, the response of firms’ debt to patent pledges can be used to estimate the minimum value of patents. Thus the potential of IPRs for mitigating financial constraints can be calculated.
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