Financing energy innovation
In a new study, we examine the impact of firms’ financing constraints on innovation activities in renewable (REN) vs. fossil-fuel (FF) technologies. Our empirical methodology relies on the construction of a firm-level dataset for 1,300 European firms over the 1995-2009 period combining balance-sheet information linked with patenting activities in REN and FF technologies. We estimate the importance of the different types of financing (e.g. cash flow, long-term debt, and stock issues) on firms’ patenting activities for the different samples of firms. We use count estimation techniques (negative binomial and Poisson models) commonly used for models with patent data and control for a large set of firm-specific controls and market developments in REN and FF technologies. We also control for the change in firm-level stocks of cash (and cash equivalents) to capture the possibility for firms to “smooth R&D” over time. We find evidence for a positive impact of internal finance on patenting activities for the sample of firms specialized in REN innovation, while we find no evidence of this link for other firms, such as firms conducting FF innovation or large mixed firms conducting both REN and FF innovation. Hence, financing constraints matter for firms specialized in REN innovation but not for other firms. Our results have important implications for policymaking as the results emphasize that small innovative newcomers in the field of renewable energy are particularly vulnerable to financing constraints, not solely because they are younger and less mature than other established firms, but mainly because they focus on new clean technologies that are still perceived as more risky by investors than the incumbent technologies.
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