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Industrial research versus development investment: the implications of financial constraints

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  • Czarnitzki, Dirk
  • Hottenrott, Hanna
  • Thorwarth, Susanne

Abstract

Previous literature provided evidence on financing constraints for investment in 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 compartmentalizing R&D activities in its components, R and D. In particular, we distinguish research from development as these activities do 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 the firms' operating liquidity than D indicating that firms have to rely even more on internal funds for financing their research compared to development activities. Moreover, we find that (basic) research subsidy recipients' investment is less sensitive to internal liquidity.

Suggested Citation

  • Czarnitzki, Dirk & Hottenrott, Hanna & Thorwarth, Susanne, 2009. "Industrial research versus development investment: the implications of financial constraints," ZEW Discussion Papers 09-049, ZEW - Leibniz Centre for European Economic Research.
  • Handle: RePEc:zbw:zewdip:09049
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    References listed on IDEAS

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    More about this item

    Keywords

    Research and development; liquidity constraints; innovation policy;
    All these keywords.

    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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