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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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Author Info

  • Bronwyn H. Hall

    (Nuffield College & Oxford & University of California at Berkeley & IFS & NBER)

  • Jacques Mairesse

    (INSEE-CREST & EHESS & NBER)

  • Lee Branstetter

    (UC Davis & NBER)

  • Bruno Crepon

    (INSEE-CREST)

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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File URL: http://128.118.178.162/eps/fin/papers/9902/9902005.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Finance with number 9902005.

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Length: 49 pages
Date of creation: 12 Feb 1999
Date of revision:
Handle: RePEc:wpa:wuwpfi:9902005

Note: Type of Document - Acrobat .pdf; prepared on Maybe TeX; to print on HP/; pages: 49; figures: included
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Web page: http://128.118.178.162

Related research

Keywords: investment; R&D; panel data; international comparisons; cash flow; firm-level;

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  1. 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.
  2. Takeo Hoshi & Anil Kashyap & David Scharfstein, 1990. "The Role of Banks in Reducing the Costs of Financial Distress in Japan," NBER Working Papers 3435, National Bureau of Economic Research, Inc.
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  7. Richard Blundell & Steve Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers W95/17, Institute for Fiscal Studies.
  8. 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.
  9. 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.
  10. Zvi Griliches & Jacques Mairesse, 1991. "R&D and Productivity Growth: Comparing Japanese and U.S. Manufacturing Firms," NBER Chapters, in: Productivity Growth in Japan and the United States, pages 317-348 National Bureau of Economic Research, Inc.
  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. M Arellano & O Bover, 1990. "Another Look at the Instrumental Variable Estimation of Error-Components Models," CEP Discussion Papers dp0007, Centre for Economic Performance, LSE.
  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. 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.
  15. 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.
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