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Financing R&D in mature companies: An empirical analysis

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  • Asher Blass
  • Oved Yosha

Abstract

We study financing patterns of publicly traded R&D-intensive manufacturing firms in Israel. We further characterize R&D-intensive firms by size, physical capital intensity, and whether they issued stocks in the United States, asking whether these features are associated with particular financing patterns. To address these issues, we present, for the first time, adjusted flow of funds charts that treat R&D expenses as a capital outlay (rather than an operating cost that reduces profits, as standard accounting principles prescribe). We also address the question of how R&D inputs should be measured - using R&D expenses or R&D personnel. We construct both expenditure- and personnel-based R&D measures for each firm in our sample, and investigate to what extent these measures are mutually consistent.

Suggested Citation

  • Asher Blass & Oved Yosha, 2003. "Financing R&D in mature companies: An empirical analysis," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 12(5), pages 425-447.
  • Handle: RePEc:taf:ecinnt:v:12:y:2003:i:5:p:425-447
    DOI: 10.1080/1043859022000029249
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    References listed on IDEAS

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    1. Bronwyn Hall, 2004. "The financing of research and development," Chapters,in: Financial Systems, Corporate Investment in Innovation, and Venture Capital, chapter 2 Edward Elgar Publishing.
    2. Hall, B.H., 1999. "Innovation and Market Value," Economics Papers 1999-w3, Economics Group, Nuffield College, University of Oxford.
    3. Jaffe, Adam B, 1986. "Technological Opportunity and Spillovers of R&D: Evidence from Firms' Patents, Profits, and Market Value," American Economic Review, American Economic Association, vol. 76(5), pages 984-1001, December.
    4. Lach, Saul, 2002. "Do R&D Subsidies Stimulate or Displace Private R&D? Evidence from Israel," Journal of Industrial Economics, Wiley Blackwell, vol. 50(4), pages 369-390, December.
    5. Blass, Asher & Yafeh, Yishay, 2001. "Vagabond shoes longing to stray: Why foreign firms list in the United States," Journal of Banking & Finance, Elsevier, vol. 25(3), pages 555-572, March.
    6. Bronwyn H. Hall, 1992. "Investment and Research and Development at the Firm Level: Does the Source of Financing Matter?," NBER Working Papers 4096, National Bureau of Economic Research, Inc.
    7. Asher Blass & Yishay Yafeh & Oved Yosha, 1998. "Corporate Governance In An Emerging Market: The Case Of Israel," Journal of Applied Corporate Finance, Morgan Stanley, vol. 10(4), pages 79-89.
    8. Steven M. Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
    9. Cohen, Wesley M & Klepper, Steven, 1996. "A Reprise of Size and R&D," Economic Journal, Royal Economic Society, vol. 106(437), pages 925-951, July.
    10. Manuel Trajtenberg, 2000. "R&D Policy in Israel: An Overview and Reassessment," NBER Working Papers 7930, National Bureau of Economic Research, Inc.
    11. Cohen, Wesley M & Klepper, Steven, 1992. "The Anatomy of Industry R&D Intensity Distributions," American Economic Review, American Economic Association, vol. 82(4), pages 773-799, September.
    12. Laura Bottazzi & Marco Da Rin, 2002. "Venture capital in Europe and the financing of innovative companies," Economic Policy, CEPR;CES;MSH, vol. 17(34), pages 229-270, April.
    13. John Bound & Clint Cummins & Zvi Griliches & Bronwyn H. Hall & Adam B. Jaffe, 1984. "Who Does R&D and Who Patents?," NBER Chapters,in: R&D, Patents, and Productivity, pages 21-54 National Bureau of Economic Research, Inc.
    14. Franklin Allen, "undated". "Stock Markets and Resource Allocation (Reprint 036)," Rodney L. White Center for Financial Research Working Papers 15-92, Wharton School Rodney L. White Center for Financial Research.
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    Citations

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    Cited by:

    1. Mark Funk, 2006. "Business cycles and research investment," Applied Economics, Taylor & Francis Journals, vol. 38(15), pages 1775-1782.
    2. Johannes Hörner & Larry Samuelson, 2013. "Incentives for experimenting agents," RAND Journal of Economics, RAND Corporation, vol. 44(4), pages 632-663, December.
    3. Bronwyn Hall, 2004. "The financing of research and development," Chapters,in: Financial Systems, Corporate Investment in Innovation, and Venture Capital, chapter 2 Edward Elgar Publishing.
    4. Silvia Magri, 2014. "Does issuing equities help R&D activity? Evidence from unlisted Italian high-tech manufacturing firms," Temi di discussione (Economic working papers) 978, Bank of Italy, Economic Research and International Relations Area.
    5. Claudio A. Piga & Gianfranco Atzeni, 2007. "R&D Investment, Credit Rationing And Sample Selection," Bulletin of Economic Research, Wiley Blackwell, vol. 59(2), pages 149-178, April.
    6. Rafferty, Matthew & Funk, Mark, 2004. "The effect of demand shocks on firm-financed R&D," Research in Economics, Elsevier, vol. 58(3), pages 187-203, September.
    7. Giacinto Micucci & Paola Rossi, 2017. "Financing R&D investments: an analysis on Italian manufacturing firms and their lending banks," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 44(1), pages 23-49, March.
    8. Silvia Magri, 2014. "Does issuing equity help R&D activity? Evidence from unlisted Italian high-tech manufacturing firms," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 23(8), pages 825-854, November.
    9. repec:cwl:cwldpp:1726rrr is not listed on IDEAS
    10. Hall, Bronwyn H. & Lerner, Josh, 2010. "The Financing of R&D and Innovation," Handbook of the Economics of Innovation, Elsevier.
    11. repec:cwl:cwldpp:1726rr is not listed on IDEAS
    12. Mihaela Diaconu, 2016. "Determinants of Financing Decisions in Innovative Firms: A Review on Theoretical Backgrounds and Empirical Evidence," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(2), pages 198-203, February.
    13. Tuomas Takalo & Tanja Tanayama, 2010. "Adverse selection and financing of innovation: is there a need for R&D subsidies?," The Journal of Technology Transfer, Springer, vol. 35(1), pages 16-41, February.
    14. Matteo Bugamelli & Luigi Cannari & Francesca Lotti & Silvia Magri, 2012. "The innovation gap of Italy�s production system: roots and possible solutions," Questioni di Economia e Finanza (Occasional Papers) 121, Bank of Italy, Economic Research and International Relations Area.

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