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Cambridge Journal of Economics Advance Access originally published online on March 16, 2006
Cambridge Journal of Economics 2007 31(1):55-76; doi:10.1093/cje/bel006
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Right arrow G30 - General
Right arrow G31 - Capital Budgeting; Fixed Investment and Inventory Studies
Right arrow G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure
Right arrow L25 - Firm Performance: Size, Diversification, and Scope
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© The Author 2006. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved.

Patents, firm size and financial constraints: an empirical analysis for a panel of Italian manufacturing firms

Giuseppe Scellato*

* Politecnico di Torino

Address for correspondence: Politecnico di Torino—DSPEA, C. so Duca degli Abruzzi 24, 10129 Torino, Italy; email: giuseppe.scellato{at}polito.it

The paper empirically investigates the issue of financial constraints to investment, focusing on its relationship with innovation activities. The study is based on the analysis of a cross-industries panel of 804 Italian companies, observed through the years 1995–2000. The main objective of the study is to highlight whether there are financial determinants underlying the strong bias of patenting activity towards larger companies in the Italian economy. By applying a dynamic panel analysis, we found that only the firms showing lower financial constraints are able to keep a sustained patenting profile through time. Our evidence suggests the existence of an imperfect capital market in the Italian economy, particularly in the case of medium-sized companies, which tend to delay inefficiently the start of in-house R&D activities.

Key Words: Financial constraints • Patenting incentives • Firm size

JEL classifications: O33, O34, G3, L25

Manuscript received December 6, 2004; final version received October 31, 2005.


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