Capital investments and financing structure: Are R&D companies different?

Research and development (R&D) activities place elevated demands on high-technology equipment and infrastructure, and this requires sizable investments. However, returns on R&D investments are time-lagged, highly uncertain and subject to appropriability problems, causing private R&D investment to fall below the socially desirable level. Market imperfections such as financing constraints are also reasons why R&D may be insufficient. This short, descriptive analysis compares the funding structure of the capital investments of R&D and non-R&D companies over rounds IV (2007-2009) and V (2012-2014) of the Business Environment and Enterprise Performance Survey. We find that R&D companies invest more relative to sales, and that they are more reliant on credit from banks and other financial intermediaries. Although the share of internal funding increased for all companies after the crisis, the strong selection of companies into R&D and innovation activities has made R&D companies less vulnerable to credit contraction with fewer marked changes in their financing structure than has been seen by non-R&D companies.