OVER-INDEBTEDNESS AND INNOVATION: SOME PRELIMINARY RESULTS

The paper studies the impact of firms’ over-indebtedness on innovation. First, we build up an over-indebtedness index which takes account of the firm’s level and structure of the debt as well as of its sustainability. Secondly, we investigate to what extent over-indebtedness explains firms’ innovative activity by focusing on Italian manufacturing firms over the 2003-2010 period. Empirical evidence suggests that indebtedness plays a significant role in explaining firms’ innovative activity, both in the Centre-North and in the South of Italy. Highly indebted firms are also more innovative, but more innovative firms are also less capable to sustain their debts out of current profits. With respect to the Centre-North, empirical results confirm the significant role played by other forms of indebtedness in explaining innovation also when we focus only on high-tech sectors and on over-indebted firms. With respect to the South, the relationship between debt and innovation is confirmed, but it is stronger for the over-indebted firms in the high tech industries.