Liquidity, innovation, and endogenous growth

We study optimal liquidity management, innovation, and production decisions for a continuum of firms facing financing frictions and the threat of creative destruction. We show that financing constraints lead firms to decrease production but may spur investment in innovation (R&D). We characterize which firms should substitute production for innovation in the face of constraints and thus display a "gambling" type of behavior. We embed our firm dynamics into a model of endogenous growth and show that financing frictions have offsetting effects on economic growth.

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Year of publication:	2016
Authors:	Malamud, Semyon ; Zucchi, Francesca
Publisher:	Frankfurt a. M. : European Central Bank (ECB)
Subject:	cash management \| endogenous growth \| financial constraints \| innovation

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Series:	ECB Working Paper ; 1919
Type of publication:	Book / Working Paper
Type of publication (narrower categories):	Working Paper
Language:	English
ISBN:	978-92-899-2167-1
Other identifiers:	10.2866/496267 [DOI] 881964115 [GVK] hdl:10419/154352 [Handle] RePEc:ecb:ecbwps:20161919 [RePEc]
Classification:	D21 - Firm Behavior ; G31 - Capital Budgeting; Investment Policy ; G32 - Financing Policy; Capital and Ownership Structure ; G35 - Payout Policy ; L11 - Production, Pricing, and Market Structure Size; Size Distribution of Firms
Source:	EconStor

Persistent link: https://www.econbiz.de/10011605964