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Overcoming Financial Constraints on Firm Innovation: The Role of R&D Human Capital

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  • Sung-Tae Lee

    (School of Electronic and Electrical Engineering, Hongik University, Seoul 04066, Republic of Korea)

  • Sun-Moon Jung

    (Dongguk Business School, Dongguk University, Seoul 04620, Republic of Korea)

Abstract

This paper examines how R&D human capital can mitigate the negative effects of financing constraints on firm innovation, using survey data from 4000 South Korean manufacturing firms. The results confirm that financing constraints are generally associated with lower levels of product innovation. However, firms with stronger R&D human capital—measured by higher education levels and a larger proportion of R&D employees—are better able to overcome these financial barriers. Moreover, the positive moderating effect of R&D human capital is significantly enhanced in firms with an entrepreneurial culture, which supports risk-taking and innovation. These findings underscore the importance of investing in intangible assets, such as human capital and fostering a culture of entrepreneurship to sustain innovation during periods of financial distress. Policymakers should consider expanding financial support for R&D activities, particularly for small and medium-sized enterprises (SMEs) that face higher costs of capital. This study contributes to the literature by using direct measures of financial constraints and highlighting the role of human capital in innovation, especially in financially constrained environments.

Suggested Citation

  • Sung-Tae Lee & Sun-Moon Jung, 2024. "Overcoming Financial Constraints on Firm Innovation: The Role of R&D Human Capital," IJFS, MDPI, vol. 12(4), pages 1-15, October.
    • Handle: RePEc:gam:jijfss:v:12:y:2024:i:4:p:109-:d:1510627
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    References listed on IDEAS

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