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R&D investment, cash holdings and the financial crisis: evidence from Korean corporate data

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  • Hyuk Chung

Abstract

This article examines the real effects of the financial crisis in 2008 on corporate R&D investment by analyzing firm-level panel data from 2005 to 2011 obtained from KIS-VALUE, a Korean corporate finance database. I estimate a dynamic panel model of R&D investment that includes an after-crisis dummy to reflect the effects of the external finance supply shock after the financial crisis, an interaction term of the dummy and cash holdings to measure the marginal effect of cash holdings after the crisis, investment opportunities (sales and the q ratio) and financial positions as the debt-equity ratio. The estimation implies a negative yet relatively small impact of the credit supply shock from the financial crisis on R&D investment and the mitigation of the negative impacts by cash holdings after the onset of the financial crisis, whereas the data show decreasing R&D investment and sales for the whole period. Based on the data and the estimation, I find that firms were able to lessen the pressure from diminishing market demand before the crisis using external finance, but they had to use internal financial sources after the crisis smooth R&D investment.

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  • Hyuk Chung, 2017. "R&D investment, cash holdings and the financial crisis: evidence from Korean corporate data," Applied Economics, Taylor & Francis Journals, vol. 49(55), pages 5638-5650, November.
    • Handle: RePEc:taf:applec:v:49:y:2017:i:55:p:5638-5650
    DOI: 10.1080/00036846.2017.1319564
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    2. Hayoung Park & Taewon Kang & Jeong-Dong Lee, 2019. "R&D Dynamics And Firm Growth: The Importance Of R&D Persistency In The Economic Crisis," International Journal of Innovation Management (ijim), World Scientific Publishing Co. Pte. Ltd., vol. 23(05), pages 1-24, June.
    3. Zhang, Xiang & Zhou, Han, 2022. "The effect of market competition on corporate cash holdings: An analysis of corporate innovation and financial constraint," International Review of Financial Analysis, Elsevier, vol. 82(C).
    4. Efstathios Magerakis & Konstantinos Gkillas & Christos Floros & George Peppas, 2022. "Corporate R&D intensity and high cash holdings: post-crisis analysis," Operational Research, Springer, vol. 22(4), pages 3767-3808, September.

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