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Effects of financial constraints on research and development investment: an empirical investigation

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  • Neslihan Ozkan

Abstract

This paper investigates the behaviour of research and development (R&D) investment. How sensitive is R&D investmentto available cash flow for financially constrained and unconstrained firms? One important distinction between R&D investment and investment in physical capital is that the result of R&D investment can not serve as collateral, as it may be impossible to put a lien on R&D capital. Given that characteristic, one would expect R&D investment to be sensitive to cash flow, especially for financially constrained firms. Using Hall's Manufacturing Sector Master File, we show that R&D investment is more sensitive to internal finance for financially constrained firms than for financially unconstrained firms in the US manufacturing sector.

Suggested Citation

  • Neslihan Ozkan, 2002. "Effects of financial constraints on research and development investment: an empirical investigation," Applied Financial Economics, Taylor & Francis Journals, vol. 12(11), pages 827-834.
    • Handle: RePEc:taf:apfiec:v:12:y:2002:i:11:p:827-834
    DOI: 10.1080/09603100110050734
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    References listed on IDEAS

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    1. Steven M. Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1996. "Financing Constraints and Corporate Investment: Response to Kaplan and Zingales," NBER Working Papers 5462, National Bureau of Economic Research, Inc.
    2. Bronwyn H. Hall, 1990. "The Manufacturing Sector Master File: 1959-1987," NBER Working Papers 3366, National Bureau of Economic Research, Inc.
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    1. Guney, Yilmaz & Karpuz, Ahmet & Ozkan, Neslihan, 2017. "R&D investments and credit lines," Journal of Corporate Finance, Elsevier, vol. 46(C), pages 261-283.
    2. Tzu-Yun Tseng, 2012. "Will China's split share structure reform mitigate agency problems?," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 10(2), pages 193-207, February.
    3. P. Brighi & R. Patuelli & G. Torluccio, 2012. "Self-Financing of Traditional and R&D Investments: Evidence from Italian SMEs," Working Papers wp845, Dipartimento Scienze Economiche, Universita' di Bologna.
    4. Yi-Chen Lin, 2007. "The cash flow sensitivity of cash: evidence from Taiwan," Applied Financial Economics, Taylor & Francis Journals, vol. 17(12), pages 1013-1024.
    5. Jean Belin & Marianne Guille, 2008. "Defence and firm financial structure in France," Review of Financial Economics, John Wiley & Sons, vol. 17(1), pages 46-61.
    6. Chen, Victor Zitian & Li, Jing & Shapiro, Daniel M., 2012. "International reverse spillover effects on parent firms: Evidences from emerging-market MNEs in developed markets," European Management Journal, Elsevier, vol. 30(3), pages 204-218.
    7. Ogawa, Kazuo, 2007. "Debt, R&D investment and technological progress: A panel study of Japanese manufacturing firms' behavior during the 1990s," Journal of the Japanese and International Economies, Elsevier, vol. 21(4), pages 403-423, December.
    8. Jean Belin & Marianne Guille, 2008. "R&D et innovation en France : quel financement pour les entreprises de la Défense ?," Innovations, De Boeck Université, vol. 0(2), pages 33-59.
    9. Fiaschi, Alessandro, 2008. "A note about credit rationing on research and development," MPRA Paper 12300, University Library of Munich, Germany, revised 10 Dec 2008.
    10. Yanrui Wu, 2012. "R&D Behaviour in Chinese Firms," Economics Discussion / Working Papers 12-26, The University of Western Australia, Department of Economics.
    11. Muhammad Kaleem Khan & Ahmad Kaleem & Salman Zulfiqar & Umair Akram, 2019. "Innovation Investment: Behaviour Of Chinese Firms Towards Financing Sources," International Journal of Innovation Management (ijim), World Scientific Publishing Co. Pte. Ltd., vol. 23(07), pages 1-29, October.

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