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Explaining firm sensitivity to R&D subsidies within a dose-response model: The role of financial constraints, real cost of investment, and strategic value of R&D

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  • Giovanni Cerulli
  • Bianca Poti'

Abstract

This paper analyzes the determinants of firm additional R&D behavior within a second-generation dose-response model. We consider three sets of R&D behaviors explanatory factors: (i) firm financial constraints; (ii) investment adjustment costs; and (iii) firm R&D market relevance. Using a sample of Italian manufacturing firms, we find a positive effect of R&D subsidization, mainly driven by companies receiving a comparatively lower share of R&D covered by public support: no more than around 20% (or 15%) for gross (or net) R&D (i.e., threshold effect). Three clear conclusions are then drawn from further inspection: (i) liquidity constraints (or funding structure) discriminate between different firm response to public subsidy; (ii) investment adjustment costs, approximated by the size of the R&D project (including the amount of subsidy), discourage firm additionality behavior, and (iii) firm size and strategic relevance of R&D make companies more responsive to public support.

Suggested Citation

  • Giovanni Cerulli & Bianca Poti', 2016. "Explaining firm sensitivity to R&D subsidies within a dose-response model: The role of financial constraints, real cost of investment, and strategic value of R&D," DEM Working Papers 2016/09, Department of Economics and Management.
    • Handle: RePEc:trn:utwprg:2016/09
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