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Hitting the gas or the brake? Recessions and firms' knowledge investments

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  • Eirik Sjåholm Knudsen
  • Lasse B. Lien

Abstract

Purpose We examine how firms alter their investment behavior in response to changes in demand and access to credit during recessions. We compare and contrast investment changes in physical assets, R&D, and human capital. Findings We find that firms tend to shield R&D investments from transitory fluctuations in demand and that R&D investments are more sensitive to credit changes than usually assumed. For human capital, we find a cubic relationship between investments and demand changes. Conclusion Important variation and trade‐offs remain hidden if investment is treated as a single category or if the distinction between demand and credit impulses is not made.

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  • Eirik Sjåholm Knudsen & Lasse B. Lien, 2019. "Hitting the gas or the brake? Recessions and firms' knowledge investments," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 40(8), pages 1000-1015, December.
    • Handle: RePEc:wly:mgtdec:v:40:y:2019:i:8:p:1000-1015
    DOI: 10.1002/mde.3086
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    Cited by:

    1. Eirik Sjåholm Knudsen & Lasse B. Lien & Bram Timmermans & Robert Wuebker, 2022. "The more things change, the more they stay the same: Demand‐side responses to economic shocks," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(5), pages 1240-1255, July.
    2. Isabel Busom & Jorge-Andrés Vélez-Ospina, 2021. "Subsidising innovation over the business cycle," Industry and Innovation, Taylor & Francis Journals, vol. 28(6), pages 773-803, July.

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