IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this book chapter or follow this series

Investment, R&D and Financial Constraints in Britain and Germany

In: Contributions in Memory of Zvi Griliches

  • Stephen Bond
  • Dietmar Harhoff
  • John Van Reenen

This paper tests for the importance of cash flow on investment in fixed capital and R&D using firm-level panel data in two countries between 1985 and 1994. For German firms, cash flow is not informative in simple econometric models of fixed investment or R&D. In identical specifications for British firms, cash flow is informative about investment, although not about the level of R&D spending conditional on the R&D participation decision. In the UK, we also find that investment is less sensitive to cash flow for R&D-performing firms, and that cash flow predicts whether firms perform R&D or not. We confirm that these differences do not simply reflect a greater role for current cash flow in forecasting future sales. These results suggest that financial constraints are more significant in Britain, that they affect the decision to engage in R&D rather than the level of R&D spending by participants, and that consequently the British firms that do engage in R&D are a self-selected group where financing constraints tend to be less binding.

(This abstract was borrowed from another version of this item.)

To our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.

as
in new window

This chapter was published in:
  • Jacques Mairesse & Manuel Trajtenberg, 2010. "Contributions in Memory of Zvi Griliches," NBER Books, National Bureau of Economic Research, Inc, number mair10-1, October.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 12242.
    Handle: RePEc:nbr:nberch:12242
    Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
    Phone: 617-868-3900
    Web page: http://www.nber.org
    Email:


    More information through EDIRC

    References listed on IDEAS
    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.:

    as in new window
    1. R. Glenn Hubbard, 1998. "Capital-Market Imperfections and Investment," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 193-225, March.
    2. Toivanen, Otto & Stoneman, Paul, 1998. "Dynamics of R&D and investment: UK evidence," Economics Letters, Elsevier, vol. 58(1), pages 119-126, January.
    3. Zvi Griliches & Jacques Mairesse, 1991. "Comparing Productivity Growth: An Exploration of French and U.S. Industrial and Firm Data," NBER Chapters, in: International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, pages 45-82 National Bureau of Economic Research, Inc.
    4. Nickell, Stephen, 1985. "Error Correction, Partial Adjustment and All That: An Expository Note," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 47(2), pages 119-29, May.
    5. Bean, Charles R, 1981. "An Econometric Model of Manufacturing Investment in the UK," Economic Journal, Royal Economic Society, vol. 91(361), pages 106-21, March.
    6. Lach, Saul & Schankerman, Mark, 1989. "Dynamics of R&D and Investment in the Scientific Sector," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 880-904, August.
    7. Steve Bond & Jason Cummins, 2001. "Noisy share prices and the Q model of investment," IFS Working Papers W01/22, Institute for Fiscal Studies.
    8. Steven Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1987. "Financing Constraints and Corporate Investment," NBER Working Papers 2387, National Bureau of Economic Research, Inc.
    9. R. Glenn Hubbard, 1990. "Asymmetric Information, Corporate Finance, and Investment," NBER Books, National Bureau of Economic Research, Inc, number glen90-1, October.
    10. Stephen Bond & Costas Meghir, 1990. "Dynamic Investment Models and the Firm's Financial Policy," CEPR Financial Markets Paper 0013, European Science Foundation Network in Financial Markets, c/o C.E.P.R, 77 Bastwick Street, London EC1V 3PZ..
    11. Hall, Bronwyn H. & Mairesse, Jaques & Branstetter, Lee & Crepon, Bruno, 1998. "Does Cash Flow Cause Investment and R&D: An Exploration Using Panel Data for French, Japanese, and United States Scientific Firms," Department of Economics, Working Paper Series qt11v204tz, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    12. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
    13. Harhoff, Dietmar, 1996. "Are there financing constraints for R&D and investment in German manufacturing firms?," ZEW Discussion Papers 96-28, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    14. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    15. Bronwyn Hall, 2004. "The financing of research and development," Chapters, in: Financial Systems, Corporate Investment in Innovation, and Venture Capital, chapter 2 Edward Elgar.
    16. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November.
    17. Kaplan, Steven N & Zingales, Luigi, 1997. "Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 169-215, February.
    18. Janice C. Eberly & Andrew B. Abel, 2004. "Q Theory Without Adjustment Costs & Cash Flow Effects Without Financing Constraints," 2004 Meeting Papers 205, Society for Economic Dynamics.
    19. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    20. Hoshi, Takeo & Kashyap, Anil & Scharfstein, David, 1991. "Corporate Structure, Liquidity, and Investment: Evidence from Japanese Industrial Groups," The Quarterly Journal of Economics, MIT Press, vol. 106(1), pages 33-60, February.
    21. Colin Mayer, 1990. "Financial Systems, Corporate Finance, and Economic Development," NBER Chapters, in: Asymmetric Information, Corporate Finance, and Investment, pages 307-332 National Bureau of Economic Research, Inc.
    22. Joao F. Gomes, 2001. "Financing Investment," American Economic Review, American Economic Association, vol. 91(5), pages 1263-1285, December.
    23. Naercio Menezes-Filho & David Ulph & John Van Reenen, 1998. "R&D and unionism: Comparative evidence from British companies and establishments," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 52(1), pages 45-63, October.
    24. Van Reenen, John, 1997. "Why has Britain had slower R&D growth?," Research Policy, Elsevier, vol. 26(4-5), pages 493-507, December.
    25. Stephen Nickell & D Nicolitsas, 1996. "Does Innovation Encourage Investment in Fixed Capital?," CEP Discussion Papers dp0309, Centre for Economic Performance, LSE.
    26. Michael Devereux & Fabio Schiantarelli, 1989. "Investment, Finacial Factors and Cash Flow: Evidence From UK Panel Data," NBER Working Papers 3116, National Bureau of Economic Research, Inc.
    27. Stephen Bond & Julie Ann Elston & Jacques Mairesse & Benoît Mulkay, 1999. "Financial Factors and Investment in Belgium, France, Germany and the UK : A Comparison using Company Panel Data," Working Papers 99-64, Centre de Recherche en Economie et Statistique.
    28. Abel, Andrew B & Blanchard, Olivier J, 1986. "The Present Value of Profits and Cyclical Movements in Investment," Econometrica, Econometric Society, vol. 54(2), pages 249-73, March.
    29. Fumio Hayashi & Tohru Inoue, 1990. "The Relation Between Firm Growth and Q with Multiple Capital Goods: Theory and Evidence from Panel Data on Japanese Firms," NBER Working Papers 3326, National Bureau of Economic Research, Inc.
    30. Ricardo J. Caballero & Eduardo M. R. A. Engel & John C. Haltiwanger, 1995. "Plant-Level Adjustment and Aggregate Investment Dynamics," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(2), pages 1-54.
    31. R. Glenn Hubbard, 1990. "Introduction to "Asymmetric Information, Corporate Finance, and Investment"," NBER Chapters, in: Asymmetric Information, Corporate Finance, and Investment, pages 1-14 National Bureau of Economic Research, Inc.
    32. Bond, Stephen R & Jenkinson, Tim, 1996. "The Assessment: Investment Performance and Policy," Oxford Review of Economic Policy, Oxford University Press, vol. 12(2), pages 1-29, Summer.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:nbr:nberch:12242. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.