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Does Cash Flow Cause Investment and R&D: An Exploration Using Panel Data for French, Japanese, and United States Scientific Firms

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  • Hall, Bronwyn H.
  • Mairesse, Jaques
  • Branstetter, Lee
  • Crepon, Bruno

Abstract

The role of financial institutions and corporate governance in the conduct and performance of industrial firms, especially in the area of technological innovation and international competition has been hotly debated in the recent past. The results presented here are a contribution to the empirical evidence on the behavior of individual firms that exist in somewhat different institutional environments. Using a Panel Data version of the Vector Auto Regressive (VAR) methodology, we test for causal relationship among sales and cash flow on the one hand and investment and R&D; on the other, using three large panels of firms in the scientific (high technology) sectors in the United States, France, and Japan. Our findings are that both investment and R&D; are more highly sensitive to cash flow and sales in the United States than in France and Japan. Corresponding, both investment and R&D; predict both cash flow and sales positively in the United States, while the impact is somewhat more mixed in the other countries.

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Bibliographic Info

Paper provided by Department of Economics, Institute for Business and Economic Research, UC Berkeley in its series Department of Economics, Working Paper Series with number qt11v204tz.

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Date of creation: 01 Jun 1998
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Handle: RePEc:cdl:econwp:qt11v204tz

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Keywords: investment; R&D; panel data; international comparisons; cash flow; firm-level; Business; Social and Behavioral Sciences; Technology and Innovation;

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  1. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
  2. Zvi Griliches & Jacques Mairesse, 1985. "R&D and Productivity Growth: Comparing Japanese and U.S. Manufacturing Firms," NBER Working Papers 1778, National Bureau of Economic Research, Inc.
  3. Hoshi, Takeo & Kashyap, Anil & Scharfstein, David, 1990. "The role of banks in reducing the costs of financial distress in Japan," Journal of Financial Economics, Elsevier, vol. 27(1), pages 67-88, September.
  4. Richard Blundell & Steve Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers W95/17, Institute for Fiscal Studies.
  5. W. Carl Kester, 1992. "Governance, Contracting, And Investment Horizons: A Look At Japan And Germany," Journal of Applied Corporate Finance, Morgan Stanley, vol. 5(2), pages 83-98.
  6. Pesaran, M. H. & Shin, Y. & Smith, R. P., 1997. "Pooled Estimation of Long-run Relationships in Dynamic Heterogeneous Panels," Cambridge Working Papers in Economics 9721, Faculty of Economics, University of Cambridge.
  7. Crepon, Bruno & Kramarz, Francis & Trognon, Alain, 1997. "Parameters of interest, nuisance parameters and orthogonality conditions An application to autoregressive error component models," Journal of Econometrics, Elsevier, vol. 82(1), pages 135-156.
  8. Zvi Griliches & Jacques Mairesse, 1991. "Comparing Productivity Growth: An Exploration of French and U.S. Industrial and Firm Data," NBER Chapters, in: International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, pages 45-82 National Bureau of Economic Research, Inc.
  9. Jacques Mairesse & Alan K. Siu, 1982. "An Extended Accelerator Model of R&D and Physical Investment," NBER Working Papers 0968, National Bureau of Economic Research, Inc.
  10. Holtz-Eakin, Douglas & Newey, Whitney & Rosen, Harvey S, 1988. "Estimating Vector Autoregressions with Panel Data," Econometrica, Econometric Society, vol. 56(6), pages 1371-95, November.
  11. Alexander, Ian & Mayer, Colin, 1990. "Banks and Securities Markets: Corporate Financing in Germany and the UK," CEPR Discussion Papers 433, C.E.P.R. Discussion Papers.
  12. Bronwyn H. Hall & Jacques Mairesse, 1992. "Exploring the Relationship Between R&D and Productivity in French Manufacturing Firms," NBER Working Papers 3956, National Bureau of Economic Research, Inc.
  13. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  14. Bronwyn H. Hall & Jacques Mairesse, 2000. "Univariate Panel Data Models and GMM Estimators: An Exploration Using Real and Simulated Data," Econometric Society World Congress 2000 Contributed Papers 1114, Econometric Society.
  15. Keane, Michael P & Runkle, David E, 1992. "On the Estimation of Panel-Data Models with Serial Correlation When Instruments Are Not Strictly Exogenous," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(1), pages 1-9, January.
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