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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. Bronwyn H. Hall, 1990. "The Manufacturing Sector Master File: 1959-1987," NBER Working Papers 3366, National Bureau of Economic Research, Inc.
    2. 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.
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    Cited by:

    1. 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.
    2. Guney, Yilmaz & Karpuz, Ahmet & Ozkan, Neslihan, 2017. "R&D investments and credit lines," Journal of Corporate Finance, Elsevier, vol. 46(C), pages 261-283.
    3. 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.
    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. Paola Brighi & Roberto Patuelli & Giuseppe Torluccio, 2012. "Self-Financing of Traditional and R&D Investments: Evidence from Italian SMEs," Working Paper series 61_12, Rimini Centre for Economic Analysis.
    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. 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.
    9. 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.
    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. Fiaschi, Alessandro, 2008. "A note about credit rationing on research and development," MPRA Paper 12300, University Library of Munich, Germany, revised 10 Dec 2008.

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