R&D Investment under Financing Constraints

52 Pages Posted: 9 Apr 2020

See all articles by Marek Giebel

Marek Giebel

Copenhagen Business School - Department of Economics

Kornelius Kraft

University of Dortmund - Department of Economics; IZA Institute of Labor Economics

Date Written: 2020

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.

Keywords: R&D investment, financing constraints, credit rating, financial crisis, bank capital, external financing of innovation

JEL Classification: G01, G21, G24, G30, O16, O30, O31, O32

Suggested Citation

Giebel, Marek and Kraft, Kornelius, R&D Investment under Financing Constraints (2020). ZEW - Centre for European Economic Research Discussion Paper No. 20-018, Available at SSRN: https://ssrn.com/abstract=3571176 or http://dx.doi.org/10.2139/ssrn.3571176

Marek Giebel (Contact Author)

Copenhagen Business School - Department of Economics ( email )

Denmark

Kornelius Kraft

University of Dortmund - Department of Economics ( email )

D-44221 Dortmund
Germany
+49 231 755-3152 (Phone)
+49 231 755-3155 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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