Strapped for Cash: The Role of Financial Constraints for Innovating Firms” joint with Esther Ann Bøler and Karen Helene Ulltveit-Moe

Abstract:

This paper analyzes a reform that allowed firms to use patents as stand-alone collateral, to estimate the magnitude of credit constraints and to quantify the aggregate impact of these constraints on misallocation and productivity. Using detailed firm- and firm-bank level data for Norway, we find that bank borrowing and the capital stock increased for firms affected by the reform relative to the control group, suggesting that innovative firms were credit constrained. We interpret the results through the lens of a model of monopolistic competition with potentially credit constrained heterogeneous firms. Removing credit constraints increase output per worker through capital deepening and misallocation. Parameterizing the model using well-identified moments from the reduced form exercise, we find quantitatively large gains in output per worker in innovative sectors of the economy. The gains are primarily driven by capital deepening, whereas within-industry misallocation plays a smaller role.