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R&D and Firm Performance in a Transition Economy

  • Dirk Czarnitzki
  • Kornelius Kraft

We estimate the effects of R&D on firms' credit ratings and on financial distress. The main purpose is the comparison of firms in Western Germany and Eastern Germany as a transitional economy. Innovative activity has a positive impact on firm value proxied by ratings in Western Germany, but a negative impact in Eastern Germany. We also consider future financial distress, and find that R&D in Eastern German firms leads to higher default risk. This stands in contrast to Western Germany where R&D enhances future performance. This result is highly politically relevant, since the high level of subsidies present in Eastern Germany may be subject to misallocation. Copyright 2006 Blackwell Publishing Ltd..

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Article provided by Wiley Blackwell in its journal Kyklos.

Volume (Year): 59 (2006)
Issue (Month): 4 (November)
Pages: 481-496

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Handle: RePEc:bla:kyklos:v:59:y:2006:i:4:p:481-496
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  1. Zoran Aralica & Katarina Bacic, 2005. "Evaluation of Croatian innovation capability," Chapters in books, in: Katarina Ott (ed.), Croatian Accession to the European Union: Facing the Challenges of Negotiations, volume 3, chapter 6, pages 129-159 Institute of Public Finance.
  2. Carlin Wendy & Schaffer Mark & Seabright Paul, 2004. "A Minimum of Rivalry: Evidence from Transition Economies on the Importance of Competition for Innovation and Growth," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 3(1), pages 1-45, September.
  3. Dirk Czarnitzki, 2005. "The Extent and Evolution of Productivity Deficiency in Eastern Germany," Journal of Productivity Analysis, Springer, vol. 24(2), pages 211-231, October.
  4. Bronwyn Hall, 2004. "The financing of research and development," Chapters, in: Financial Systems, Corporate Investment in Innovation, and Venture Capital, chapter 2 Edward Elgar.
  5. Philippe Aghion & Wendy Carlin & Mark Schaffer, 2002. "Competition, Innovation and Growth in Transition: Exploring the Interactions between Policies," William Davidson Institute Working Papers Series 501, William Davidson Institute at the University of Michigan.
  6. Dirk Czarnitzki & Georg Licht, 2006. "Additionality of public R&D grants in a transition economy," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 14(1), pages 101-131, 03.
  7. Dirk Czarnitzki, 2006. "Research And Development In Small And Medium-Sized Enterprises: The Role Of Financial Constraints And Public Funding," Scottish Journal of Political Economy, Scottish Economic Society, vol. 53(3), pages 335-357, 07.
  8. Czarnitzki, Dirk & Kraft, Kornelius, 2004. "Innovation indicators and corporate credit ratings: evidence from German firms," Economics Letters, Elsevier, vol. 82(3), pages 377-384, March.
  9. Almus, Matthias & Czarnitzki, Dirk, 2001. "The effects of public R&D subsidies on firms' innovation activities: the case of Eastern Germany," ZEW Discussion Papers 01-10, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  10. Fisher, Franklin M & McGowan, John J, 1983. "On the Misuse of Accounting Rates of Return to Infer Monopoly Profits," American Economic Review, American Economic Association, vol. 73(1), pages 82-97, March.
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