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Internal vs External Financing of R&D

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  • Spiros Bougheas

Abstract

The empirical evidence suggests that while small firms in United States, United Kingdom and Canada rely on internal funds for financing R&D, similar firms in Japan, Germany and France have access to bank loans. In this paper, we analyze the financial decisions of small firms willing to invest in R&D. We find that their high ratio of intangible assets, along with the high risk nature of their investments, can explain their inability to raise debt in external capital markets. We also show that financing R&D with bank loans might be feasible, especially, if banks are willing to monitor the investment activities of their clients.

Suggested Citation

  • Spiros Bougheas, 2004. "Internal vs External Financing of R&D," Small Business Economics, Springer, vol. 22(1), pages 11-17, February.
    • Handle: RePEc:kap:sbusec:v:22:y:2004:i:1:p:11-17
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    Cited by:

    1. Antonio Usai & Daniele Porcheddu & Veronica Scuotto & Jean-Paul Susini, 2020. "Converting Shelf-Based Scarcity into Innovation by Adopting Customer-Focused Innovation Approach," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 11(1), pages 70-83, March.
    2. Hamadi FakhFakh & Rim Zouari-Hadiji, 2011. "Dettes financières et investissement en R&D:une étude comparative," Working Papers CREGO 1110302, Université de Bourgogne - CREGO EA7317 Centre de recherches en gestion des organisations.
    3. Ruchi Gupta & Bhanu Pratap Singh, 2024. "Does Access to Finance and Investment Climate Enhance Small and Medium Enterprises (SMEs) Innovation in India?," SN Operations Research Forum, Springer, vol. 5(4), pages 1-29, December.
    4. Distefano, Rosaria, 2022. "The social cost of playing by the rules in the credit market," MPRA Paper 115326, University Library of Munich, Germany.
    5. Ciarán mac an Bhaird & Brian Lucey, 2010. "Determinants of capital structure in Irish SMEs," Small Business Economics, Springer, vol. 35(3), pages 357-375, October.
    6. Chi-Lin Yang & Jung-Ho Lai, 2021. "Influence of Cross-Listing on the Relationship between Financial Leverage and R&D Investment: A Sustainable Development Strategy," Sustainability, MDPI, vol. 13(18), pages 1-14, September.
    7. Jose‐Maria Garcia‐Alvarez‐Coque & Francisco Mas‐Verdu & Mercedes Sanchez García, 2015. "Determinants of Agri‐food Firms’ Participation in Public Funded Research and Development," Agribusiness, John Wiley & Sons, Ltd., vol. 31(3), pages 314-329, June.
    8. Akçomak, I. Semih & ter Weel, Bas, 2009. "Social capital, innovation and growth: Evidence from Europe," European Economic Review, Elsevier, vol. 53(5), pages 544-567, July.
    9. Kyong Ryul Koo & Sang Jin Kim & Kyung Hoon Kim, 2016. "The effects of internal marketing capability on export marketing strategy, B2B marketing mix and export performance," Journal of Global Scholars of Marketing Science, Taylor & Francis Journals, vol. 26(1), pages 51-65, January.
    10. He, Yiqing & Ding, Xin & Yang, Chuchu, 2021. "Do environmental regulations and financial constraints stimulate corporate technological innovation? Evidence from China," Journal of Asian Economics, Elsevier, vol. 72(C).
    11. Hsueh-En Hsu & Chiulien C Venezia & Chelsea Schrader, 2015. "Relationships Between Institutional Ownership, Capital Structure And Research And Development Investment," Accounting & Taxation, The Institute for Business and Finance Research, vol. 7(2), pages 75-82.
    12. Skuras, Dimitris & Tsegenidi, Kyriaki & Tsekouras, Kostas, 2008. "Product innovation and the decision to invest in fixed capital assets: Evidence from an SME survey in six European Union member states," Research Policy, Elsevier, vol. 37(10), pages 1778-1789, December.
    13. Ziyuan Sun & Yanli Li & Man Wang & Xiaoping Wang & Yiwen Pan & Feng Dong, 2019. "How does vertical integration promote innovation corporate social responsibility (ICSR) in the coal industry? A multiple-step multiple mediator model," PLOS ONE, Public Library of Science, vol. 14(6), pages 1-23, June.
    14. Thi Thu Tra Pham & Thai Vu Hong Nguyen & Son Kien Nguyen & Hieu Thi Hoang Nguyen, 2023. "Does planned innovation promote financial access? Evidence from Vietnamese SMEs," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 13(2), pages 281-307, June.
    15. Neville, Conor & Lucey, Brian M., 2022. "Financing Irish high-tech SMEs: The analysis of capital structure," International Review of Financial Analysis, Elsevier, vol. 83(C).
    16. Halima Jibril & Annina Kaltenbrunner & Effi Kesidou, 2018. "Financialisation and innovation in emerging economics," FMM Working Paper 27-2018, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    17. Arnis Sauka, 2014. "Measuring the competitiveness of Latvian companies," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 14(1-2), pages 140-158, December.
    18. Adele Finco & Deborah Bentivoglio & Giorgia Bucci, 2018. "Lessons of Innovation in the Agrifood Sector: Drivers of Innovativeness Performances," Economia agro-alimentare, FrancoAngeli Editore, vol. 20(2), pages 181-192.
    19. Pragati Priya & Chandan Sharma, 2023. "Do financial constraints and corruption limit firms' innovation capability? Evidence from developing economies," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(4), pages 1935-1961, June.
    20. Lei Cheng & Zhen Lei, 2015. "Does the expansion of Chinese state-owned enterprises affect the innovative behavior of private enterprises?," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 22(1), pages 24-54, March.
    21. Kounetas, Kostas & Skuras, Dimitris & Tsekouras, Kostas, 2011. "Promoting energy efficiency policies over the information barrier," Information Economics and Policy, Elsevier, vol. 23(1), pages 72-84, March.

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