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Industrial research versus development investment: the implications of financial constraints

Author

Listed:
  • Dirk Czarnitzki
  • Hanna Hottenrott
  • Susanne Thorwarth

Abstract

Previous literature provided evidence on financing constraints for investment in research and development (R&D) activities due to capital market imperfections and special features of R&D investments. Moreover, it has been shown that a shift in capital structure towards more debt results in a reduction of R&D investments. This article complements this literature by compartmentalising R&D activities into its components, 'R' and 'D'. In particular, we distinguish research from development as these activities not only differ in their nature but also, to a large extent, take place sequentially. Our results show that 'R' investment is more sensitive to a firms' operating liquidity than 'D' indicating that firms have to rely even more on internal funds for financing their research compared with development activities. Moreover, we find that (basic) research subsidy recipients' investment is less sensitive to internal liquidity. Copyright The Author 2010. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved., Oxford University Press.

Suggested Citation

  • Dirk Czarnitzki & Hanna Hottenrott & Susanne Thorwarth, 2011. "Industrial research versus development investment: the implications of financial constraints," Cambridge Journal of Economics, Oxford University Press, vol. 35(3), pages 527-544.
  • Handle: RePEc:oup:cambje:v:35:y:2011:i:3:p:527-544
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    File URL: http://hdl.handle.net/10.1093/cje/beq038
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    More about this item

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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