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The Dynamics of Firm Growth - a re-examination

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  • Lööf, Hans

    ()
    (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)

Abstract

This article provides evidence that shed further light on the dynamic relationships between finance, physical investment, R&D, productivity and profit. Estimating relationships for 5,289 observations on Swedish manufacturing firms with 50 or more employees over the 1992-2000 periods, the following substantial empirical findings emerge. First, physical investments are sensitive to both internal financing (profit) and external financing (expressed as leverage, or the ratio of debt over equity and debt) while R&D is only weakly affected by the firm’s finance conditions. Second, no robust correlation between knowledge investments and ordinary investments can be established. Third, R&D has a strong effect on productivity and profit. The reverse relationship is fragile and typically insignificant. The causality between physical capital and productivity is bidirectional, while increased profit leads to more capital but not the vice versa.

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Bibliographic Info

Paper provided by Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies in its series Working Paper Series in Economics and Institutions of Innovation with number 128.

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Length: 31 pages
Date of creation: 28 Apr 2008
Date of revision:
Handle: RePEc:hhs:cesisp:0128

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Keywords: Financial constraints; R&D; Investments; Productivity; Panel data;

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