IDEAS home Printed from https://ideas.repec.org/p/wdi/papers/1998-180.html
   My bibliography  Save this paper

Financing Mechanisms and R&D Investment

Author

Listed:
  • Haizhou Huang
  • Chenggang Xu

Abstract

This paper analyzes how financial institutions affect efficiency in R&-D investments by providing a new contractual foundation for soft budget constraints. We show those inefficient elements (informational asymmetries and conflicts of interest among co-investors) in multi-investor financing can be used as, a commitment device to stop bad projects which are discovered ex post. In the case of single investors financing (such as internal financing). However, the commitment device does not exist. Our theory predicts that optimally many investors should finance an R&-D project if there are high uncertainties. Otherwise, internal financial preferable. In addition, an institutional cost affects firm decisions and efficiency in R&D investments.

Suggested Citation

  • Haizhou Huang & Chenggang Xu, 1998. "Financing Mechanisms and R&D Investment," William Davidson Institute Working Papers Series 180, William Davidson Institute at the University of Michigan.
  • Handle: RePEc:wdi:papers:1998-180
    as

    Download full text from publisher

    File URL: http://deepblue.lib.umich.edu/bitstream/2027.42/39567/3/wp180.pdf
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Carlin, Wendy & Mayer, Colin, 2003. "Finance, investment, and growth," Journal of Financial Economics, Elsevier, vol. 69(1), pages 191-226, July.
    2. Wendy Carlin & Colin Mayer, 2002. "International Evidence on Corporate Governance: Lessons for Developing Countries," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 11(suppl_1), pages 37-59, February.
    3. Chenggang Xu & Haizhou Huang, 1999. "Institutions, Innovations, and Growth," American Economic Review, American Economic Association, vol. 89(2), pages 438-443, May.
    4. Eric S. Maskin, 1999. "Recent Theoretical Work on the Soft Budget Constraint," American Economic Review, American Economic Association, vol. 89(2), pages 421-425, May.
    5. Xing Gao & Xifan Wang & Weijun Zhong & Ying Wang, 2023. "R&D subsidy and output subsidy in a duopoly: The role of technology spillover and R&D budget," Australian Economic Papers, Wiley Blackwell, vol. 62(3), pages 524-538, September.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wdi:papers:1998-180. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: WDI (email available below). General contact details of provider: https://edirc.repec.org/data/wdumius.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.