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R&D investment under financing constraints

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  • Giebel, Marek
  • Kraft, Kornelius

Abstract

This paper tests for the sensitivity of R&D to financing constraints conditional on restrictions in external financing. Financing constraints of firms are identified by an exogenously calculated rating index. Restrictions in external financing are determined by (i) the specific time period (crisis vs. non-crisis) and (ii) the balance sheet strength of the firm's main bank in terms of bank capital. Results of difference-in-differences estimations utilizing three time periods: 2002-2006 (pre-crisis) 2007-2009 (crisis) and 2010-2012 (post-crisis) support the theoretical prediction that financing constraints affect R&D. Moreover, we find that the effect of firm financing constraints is more intense (i) in times of stress on financial markets and (ii) when the firm faces restrictions in external financing. Additionally, our results indicate that on average the effect does not persist over time.

Suggested Citation

  • Giebel, Marek & Kraft, Kornelius, 2020. "R&D investment under financing constraints," ZEW Discussion Papers 20-018, ZEW - Leibniz Centre for European Economic Research.
  • Handle: RePEc:zbw:zewdip:20018
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    14. García-Quevedo, José & Segarra-Blasco, Agustí & Teruel, Mercedes, 2018. "Financial constraints and the failure of innovation projects," Technological Forecasting and Social Change, Elsevier, vol. 127(C), pages 127-140.
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    More about this item

    Keywords

    R&D investment; financing constraints; credit rating; financial crisis; bank capital; external financing of innovation;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • 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

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