This paper uses firm level data to show how R&D investment responds to shocks in sales growth in credit constrained firms. A credit constrained firm has to rely on its cash flow and borrowing capacity to survive its short-run liquidity shock when hit by a negative shock. This reduces the possibility for further borrowing in order to invest in non-tangible long term R&D, hence a negative shock should hit R&D investments more in firms that are more credit constrained. We find that in financially constrained firms sales growth is positively associated with R&D investment, suggesting procyclical behavior of R&D investment in credit constrained firms. In contrast, we find that in firms with no financial constraints R&D investment is negatively correlated with sales growth, suggesting countercyclical behavior of R&D, consistent with the Schumpeterian idea of restructuring. Furthermore, we find that the firm level response in R&D investment to sales growth is stronger in firms that are more financially dependent, such as firms that are no part of a multinational, firms not receiving subsidies or firms with less collateral.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by LICOS - Centre for Institutions and Economic Performance, K.U.Leuven in its series LICOS Discussion Papers with number
23909.
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.: