Do Financial Constraints Hold Back Innovation and Growth?

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Title: Do Financial Constraints Hold Back Innovation and Growth?
Alternative title: Evidence on the Role of Public Policy
Author: Hyytinen, Ari; Toivanen, Otto
Publisher: Hanken School of Economics
Date: 2002-09-17
Language: en
Belongs to series: 9
ISBN: 951-555-745-3
Abstract: This paper provides evidence that capital market imperfections hold back innovation and growth, and that public policy can complement capital markets. We deliver the evidence by studying the effects of government funding on the behavior of SMEs in Finland. By adapting the methodology recently proposed by Rajan and Zingales (1998) to firm-level data, we show that government funding disproportionately helps firms from industries that are dependent on external finance. We demonstrate that the result is economically significant and robust to a variety of tests.
Subject (ysa): corporate finance
financial constraints
firm growth

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