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Do financing constraints matter for R&D?
KTH, School of Industrial Engineering and Management (ITM), Industrial Economics and Management (Dept.), Entrepreneurship and innovation. KTH, School of Industrial Engineering and Management (ITM), Centres, Centre of Excellence for Science and Innovation Studies, CESIS.ORCID iD: 0000-0002-9311-3914
2012 (English)In: European Economic Review, ISSN 0014-2921, E-ISSN 1873-572X, Vol. 56, no 8, 1512-1529 p.Article in journal (Refereed) Published
Abstract [en]

Information problems and lack of collateral value should make R&D more susceptible to financing frictions than other investments, yet existing evidence on whether financing constraints limit R&D is decidedly mixed, particularly in the studies of non-U.S. firms. We study a large sample of European firms and also find little evidence of binding finance constraints when we estimate standard investment-cash flow regressions. However, we find strong evidence that the availability of finance matters for R&D once we directly control for: (i) firm efforts to smooth R&D with cash reserves and (ii) firm use of external equity finance. Our study provides a framework for evaluating financing constraints when firms rely extensively on external finance and endogenously manage buffer stocks of liquidity to keep investment smooth, and our findings show that controlling for this smoothing behavior is critical for uncovering the full effect of financing constraints. Our findings also indicate a major role for external equity in financing R&D, highlighting a causal channel through which stock market development and liberalization can promote economic growth by increasing firm-level innovative activity.

Place, publisher, year, edition, pages
Elsevier, 2012. Vol. 56, no 8, 1512-1529 p.
Keyword [en]
Financing innovation; R&D financing constraints; Finance and growth; Stock market development; Value of liquidity
National Category
Economics
Identifiers
URN: urn:nbn:se:kth:diva-178944DOI: 10.1016/j.euroecorev.2012.07.007ISI: 000311465000003ScopusID: 2-s2.0-84866990041OAI: oai:DiVA.org:kth-178944DiVA: diva2:878503
Note

Previous title "Do financing constraints matter for R&D? : New Tests and Evidence".

QC 20151210

Available from: 2015-12-09 Created: 2015-12-09 Last updated: 2015-12-10Bibliographically approved
In thesis
1. Does Finance Matter for Corporate Innovation?
Open this publication in new window or tab >>Does Finance Matter for Corporate Innovation?
2010 (English)Doctoral thesis, comprehensive summary (Other academic)
Place, publisher, year, edition, pages
Stockholm: KTH, 2010
National Category
Economics and Business Economics
Identifiers
urn:nbn:se:kth:diva-25249 (URN)978-91-978692-1 (ISBN)
Public defence
2010-10-22, E1, Lindstedtsvägen 3, KTH, Stockholm, 10:10 (English)
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Supervisors
Note

QC 20101013

Available from: 2010-10-13 Created: 2010-10-13 Last updated: 2015-12-10Bibliographically approved

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Publisher's full textScopushttp://www.sciencedirect.com/science/article/pii/S0014292112001080

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