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R&D and Firm Performance in a Transition Economy

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  • Dirk Czarnitzki
  • Kornelius Kraft

Abstract

We estimate the effects of R&D on firms' credit ratings and on financial distress. The main purpose is the comparison of firms in Western Germany and Eastern Germany as a transitional economy. Innovative activity has a positive impact on firm value proxied by ratings in Western Germany, but a negative impact in Eastern Germany. We also consider future financial distress, and find that R&D in Eastern German firms leads to higher default risk. This stands in contrast to Western Germany where R&D enhances future performance. This result is highly politically relevant, since the high level of subsidies present in Eastern Germany may be subject to misallocation.

Suggested Citation

  • Dirk Czarnitzki & Kornelius Kraft, 2006. "R&D and Firm Performance in a Transition Economy," Kyklos, Wiley Blackwell, vol. 59(4), pages 481-496, November.
    • Handle: RePEc:bla:kyklos:v:59:y:2006:i:4:p:481-496
    DOI: 10.1111/j.1467-6435.2006.00346.x
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    1. Almus, Matthias & Czarnitzki, Dirk, 2003. "The Effects of Public R&D Subsidies on Firms' Innovation Activities: The Case of Eastern Germany," Journal of Business & Economic Statistics, American Statistical Association, vol. 21(2), pages 226-236, April.
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    6. Dirk Czarnitzki, 2005. "The Extent and Evolution of Productivity Deficiency in Eastern Germany," Journal of Productivity Analysis, Springer, vol. 24(2), pages 211-231, October.
    7. Dirk Czarnitzki, 2006. "Research And Development In Small And Medium‐Sized Enterprises: The Role Of Financial Constraints And Public Funding," Scottish Journal of Political Economy, Scottish Economic Society, vol. 53(3), pages 335-357, July.
    8. Bronwyn H. Hall & Adam Jaffe & Manuel Trajtenberg, 2005. "Market Value and Patent Citations," RAND Journal of Economics, The RAND Corporation, vol. 36(1), pages 16-38, Spring.
    9. Zvi Griliches, 1984. "Market Value, R&D, and Patents," NBER Chapters, in: R&D, Patents, and Productivity, pages 249-252, National Bureau of Economic Research, Inc.
    10. Hall, Bronwyn H, 1987. "The Relationship between Firm Size and Firm Growth in the U.S. Manufacturing Sector," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 583-606, June.
    11. Derek Bosworth & Elizabeth Webster (ed.), 2006. "The Management of Intellectual Property," Books, Edward Elgar Publishing, volume 0, number 3649.
    12. Fisher, Franklin M & McGowan, John J, 1983. "On the Misuse of Accounting Rates of Return to Infer Monopoly Profits," American Economic Review, American Economic Association, vol. 73(1), pages 82-97, March.
    13. Zoran Aralica & Katarina Bacic, 2005. "Evaluation of Croatian innovation capability," Chapters in books, in: Katarina Ott (ed.), Croatian Accession to the European Union: Facing the Challenges of Negotiations, volume 3, chapter 6, pages 129-159, Institute of Public Finance.
    14. Marianne Paasi, 2000. "Restructuring the Innovation Capacity of the Business Sector in Estonia: Business Survey Result," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 8(1), pages 175-195, March.
    15. repec:lic:licosd:11402 is not listed on IDEAS
    16. Czarnitzki, Dirk & Kraft, Kornelius, 2004. "Innovation indicators and corporate credit ratings: evidence from German firms," Economics Letters, Elsevier, vol. 82(3), pages 377-384, March.
    17. Philippe Aghion & Wendy Carlin & Mark Schaffer, 2002. "Competition, Innovation and Growth in Transition: Exploring the Interactions between Policies," William Davidson Institute Working Papers Series 501, William Davidson Institute at the University of Michigan.
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    Cited by:

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    2. Dirk Czarnitzki & Katrin Hussinger & Cédric Schneider, 2015. "R&D Collaboration with Uncertain Intellectual Property Rights," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 46(2), pages 183-204, March.
    3. Eleimon Gonis & Salima Paul & Jon Tucker, 2012. "Rating or no rating? That is the question: an empirical examination of UK companies," The European Journal of Finance, Taylor & Francis Journals, vol. 18(8), pages 709-735, September.
    4. Cuijpers, Maarten & Guenter, Hannes & Hussinger, Katrin, 2011. "Costs and benefits of inter-departmental innovation collaboration," Research Policy, Elsevier, vol. 40(4), pages 565-575, May.
    5. Hussinger, Katrin & Dick, Johannes M.H. & Czarnitzki, Dirk, 2018. "Ownership concentration and innovativeness of corporate ventures," Research Policy, Elsevier, vol. 47(2), pages 527-541.
    6. Anja Schmiele, 2012. "Drivers for international innovation activities in developed and emerging countries," The Journal of Technology Transfer, Springer, vol. 37(1), pages 98-123, February.
    7. Charles S. Maier, 2010. "The Travails of Unification: East Germany's Economic Transition since 1989," WIDER Working Paper Series wp-2010-060, World Institute for Development Economic Research (UNU-WIDER).
    8. Andreas Ziegler, 2008. "Disentangling Specific Subsets of Innovations : A Micro-Econometric Analysis of their Determinants," CER-ETH Economics working paper series 08/100, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    9. Woo Sung Kim & Kunsu Park & Sang Hoon Lee & Hongyoung Kim, 2018. "R&D Investments and Firm Value: Evidence from China," Sustainability, MDPI, vol. 10(11), pages 1-17, November.
    10. Grimpe, Christoph & Hussinger, Katrin, 2009. "Inventions under siege? The impact of technology competition on licensing," ZEW Discussion Papers 09-039, ZEW - Leibniz Centre for European Economic Research.
    11. Muhammad Arif Khan & Meng Bin & Chunlin Wang & Hazrat Bilal & Arshad Ali Khan & Irfan Ullah & Amjad Iqbal & Mohib Ur Rahman, 2023. "Impact of R&D on Firm Performance: Do Ownership Structure and Product Market Competition Matter?," SAGE Open, , vol. 13(4), pages 21582440231, November.
    12. Adriana Zabłocka-Abi Yaghi & Tomasz Tomaszewski, 2024. "Measuring the Impact of R&D&I Subsidies on Innovative Inputs and Outputs in Polish Manufacturing Firms," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(1), pages 3792-3823, March.

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    More about this item

    JEL classification:

    • P27 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Performance and Prospects
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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