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Financial Constraint and R&D Investment: Evidence from CIS

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  • Mohnen, Pierre

    ()
    (UNU-MERIT and University of Maastricht)

  • Tiwari, Amaresh

    ()
    (University of Maastricht)

  • Palm, Franz

    ()
    (University of Maastricht)

  • Schim van der Loeff, Sybrand

    ()
    (University of Maastricht)

Abstract

Using direct information on financial constraints from questionnaires, rather than the commonly used balance sheet information, this paper presents evidence that, controlling for traditional factors as size, market share, cooperative arrangement, and expected profitability, financial constraints affect a firm's decision of how much to invest in R&D activities. Apart from these constraints, other hampering factors as market uncertainty and institutional bottlenecks, regulations and organizational rigidities also affect R&D investment. A semiparametric estimator of sample selection is employed to control for potential endogeneity of the regressors. The paper also shows that old firms and firms that belong to a group are less financially constrained when it comes to undertaking R&D activities. For the estimation a semiparametric binary choice model is used.

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File URL: http://www.merit.unu.edu/publications/wppdf/2007/wp2007-011.pdf
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Bibliographic Info

Paper provided by United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT) in its series MERIT Working Papers with number 011.

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Date of creation: 2007
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Handle: RePEc:unm:unumer:2007011

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Keywords: Research and Development; Investment; Financial Risk;

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References

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  1. Lars-Hendrik Röller & Mikhel M. Tombak & Ralph Siebert, 1997. "Why Firms Form Research Joint Ventures: Theory and Evidence," CIG Working Papers, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG) FS IV 97-06, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG), revised Oct 1997.
  2. Øivind Anti Nilsen & Fabio Schiantarelli, 2003. "Zeros and Lumps in Investment: Empirical Evidence on Irreversibilities and Nonconvexities," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 1021-1037, November.
  3. Sean Cleary, 1999. "The Relationship between Firm Investment and Financial Status," Journal of Finance, American Finance Association, American Finance Association, vol. 54(2), pages 673-692, 04.
  4. Stephen Bond & Costas Meghir, 1990. "Dynamic Investment Models and the Firm's Financial Policy," CEPR Financial Markets Paper, European Science Foundation Network in Financial Markets, c/o C.E.P.R, 77 Bastwick Street, London EC1V 3PZ 0013, European Science Foundation Network in Financial Markets, c/o C.E.P.R, 77 Bastwick Street, London EC1V 3PZ.
  5. Gale, Douglas & Hellwig, Martin, 1985. "Incentive-Compatible Debt Contracts: The One-Period Problem," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 52(4), pages 647-63, October.
  6. Frédérique Savignac, 2006. "The impact of financial constraints on innovation : evidence from French manufacturing firms," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00115717, HAL.
  7. Arthur Lewbel & Susanne M. Schennach, 2003. "A Simple Ordered Data Estimator For Inverse Density Weighted Functions," Boston College Working Papers in Economics, Boston College Department of Economics 557, Boston College Department of Economics, revised 01 May 2005.
  8. Cohen, Wesley M & Levinthal, Daniel A, 1989. "Innovation and Learning: The Two Faces of R&D," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 99(397), pages 569-96, September.
  9. Himmelberg, Charles P & Petersen, Bruce C, 1994. "R&D and Internal Finance: A Panel Study of Small Firms in High-Tech Industries," The Review of Economics and Statistics, MIT Press, vol. 76(1), pages 38-51, February.
  10. João F. Gomes & Amir Yaron & Lu Zhang, 2006. "Asset Pricing Implications of Firms' Financing Constraints," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 19(4), pages 1321-1356.
  11. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers, Massachusetts Institute of Technology (MIT), Sloan School of Management 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  12. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, Elsevier, vol. 3(4), pages 305-360, October.
  13. De Bondt, Raymond & Slaets, Patrick & Cassiman, Bruno, 1992. "The degree of spillovers and the number of rivals for maximum effective R &D," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 10(1), pages 35-54, March.
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Citations

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Cited by:
  1. P. Mohnen & F. Palm & S. Loeff & A. Tiwari, 2008. "Financial Constraints and Other Obstacles: are they a Threat to Innovation Activity?," De Economist, Springer, Springer, vol. 156(2), pages 201-214, June.
  2. Spielkamp, Alfred & Czarnitzki, Dirk & Rammer, Christian, 2008. "Innovation Success of Non-R&D-Performers: Substituting Technology by Management in SMEs," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 08-092, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  3. Christian Schröder, 2009. "Financial System and Innovations: Determinants of Early Stage Venture Capital in Europe," EIIW Discussion paper, Universitätsbibliothek Wuppertal, University Library disbei167, Universitätsbibliothek Wuppertal, University Library.
  4. Jacques Mairesse & Pierre Mohnen, 2010. "Using Innovations Surveys for Econometric Analysis," NBER Working Papers 15857, National Bureau of Economic Research, Inc.
  5. Filipe Silva & Carlos Carreira, 2011. "Do financial constraints threat the innovation process? Evidence from Portuguese firms," GEMF Working Papers, GEMF - Faculdade de Economia, Universidade de Coimbra 2011-10, GEMF - Faculdade de Economia, Universidade de Coimbra, revised Oct 2011.
  6. D’Este, Pablo & Iammarino, Simona & Savona, Maria & von Tunzelmann, Nick, 2012. "What hampers innovation? Revealed barriers versus deterring barriers," Research Policy, Elsevier, Elsevier, vol. 41(2), pages 482-488.

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