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The Importance of Equity Finance for R&D Activity: Are There Differences Between Young and OldCompanies?

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Author Info
Zimmermann, Volker
Mueller, Elisabeth

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Abstract

This paper analyzes the importance of equity finance for the R&D activity of small and medium-sized enterprises. We use information on almost 6000 German SMEs from a company survey. Using the intensity of banking competition at the district level as instrument to control for endogeneity, we find that a higher equity ratio is conducive to more R&D for young but not for old companies. Equity may be a constraining factor for young companies which have to rely on the original equity investment of their owners since they have not yet accumulated retained earnings and can relay less on outside financing. The positive influence is found for R&D intensity but not for the decision whether to perform R&D. Equity financing is therefore especially important for the most innovative, young companies. --

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Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 06-014 [rev.].

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Date of creation: 2007
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Handle: RePEc:zbw:zewdip:7186

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Related research
Keywords: R&D activity; equity finance; small and medium-sized enterprises;

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Find related papers by JEL classification:
O32 - Economic Development, Technological Change, and Growth - - Technological Change - - - Management of Technological Innovation and R&D
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure

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Cited by:
(explanations, 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.)

  1. David B. Audretsch & Werner Bönte & Prashanth Mahagaonkar, 2007. "Nascent Entrepreneurs, Innovation and Financing Constraints," DRUID Working Papers 07-09, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies. [Downloadable!]
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