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Firm R&D and Financial Analysis: How Do They Interact?

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  • Goldman, Jim
  • Peress, Jo�l

Abstract

Entrepreneurs undertake more R&D when financiers are better informed about their projects because they expect to receive more funding for successful projects. Conversely, financiers learn more about projects when entrepreneurs perform more R&D because then the opportunity cost of mis-investing is higher. Thus R&D and financial analysis are mutually reinforcing. Evidence based on two quasi-natural experiments supports this interaction. Quantitatively, investors' learning accounts for over a quarter of the total effect of a policy designed to stimulate R&D. A calibration suggests that the interaction's contribution to income growth represents a third of the total contributions of learning and R&D.

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  • Goldman, Jim & Peress, Jo�l, 2017. "Firm R&D and Financial Analysis: How Do They Interact?," CEPR Discussion Papers 12433, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:12433
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    Keywords

    capital allocation; Financial Development; growth; Innovation; learning; technological progress;

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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