IDEAS home Printed from https://ideas.repec.org/p/vlg/vlgwps/2008-12.html
   My bibliography  Save this paper

Do R&D subsidies affect SME's: access to external financing

Author

Listed:
  • Meuleman, M.
  • De Maeseneire, W.

    (Vlerick Leuven Gent Management School)

Abstract

Many countries spend sizeable sums of public money on R&D grants to alleviate debt and equity gaps for small firms’ innovation projects. In making such awards, knowledgeable government officials may certify firms to private financiers. This paper investigates whether government subsidies to R&D enhance SMEs’ access to external financing due to this certification effect. Using a unique Belgian dataset of 1107 approved requests and a control group of 501 denied requests for a specific type of R&D grant, we examine the impact on small firms’ external equity, short term and long term debt financing. We find that obtaining a R&D subsidy provides a positive signal about SME quality and results in better access to long-term debt.

Suggested Citation

  • Meuleman, M. & De Maeseneire, W., 2008. "Do R&D subsidies affect SME's: access to external financing," Vlerick Leuven Gent Management School Working Paper Series 2008-12, Vlerick Leuven Gent Management School.
    • Handle: RePEc:vlg:vlgwps:2008-12
    as

    Download full text from publisher

    File URL: http://www.vlerick.be/en/9050-VLK/version/default/part/AttachmentData/data/vlgms-wp-2008-12.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Hovakimian, Armen & Opler, Tim & Titman, Sheridan, 2001. "The Debt-Equity Choice," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 36(1), pages 1-24, March.
    2. Storey, D. J. & Tether, B. S., 1998. "New technology-based firms in the European union: an introduction," Research Policy, Elsevier, vol. 26(9), pages 933-946, April.
    3. James, Christopher, 1987. "Some evidence on the uniqueness of bank loans," Journal of Financial Economics, Elsevier, vol. 19(2), pages 217-235, December.
    4. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
    5. A. Michael Spence, 1979. "Investment Strategy and Growth in a New Market," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 1-19, Spring.
    6. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    7. Bronwyn Hall, 2004. "The financing of research and development," Chapters, in: Anthony Bartzokas & Sunil Mani (ed.), Financial Systems, Corporate Investment in Innovation, and Venture Capital, chapter 2, Edward Elgar Publishing.
    8. N. Berger, Allen & F. Udell, Gregory, 1998. "The economics of small business finance: The roles of private equity and debt markets in the financial growth cycle," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 613-673, August.
    9. Joel A. C. Baum & Tony Calabrese & Brian S. Silverman, 2000. "Don't go it alone: alliance network composition and startups' performance in Canadian biotechnology," Strategic Management Journal, Wiley Blackwell, vol. 21(3), pages 267-294, March.
    10. Binks, Martin R & Ennew, Christine T, 1996. "Growing Firms and the Credit Constraint," Small Business Economics, Springer, vol. 8(1), pages 17-25, February.
    11. Sandeep Dahiya & Manju Puri & Anthony Saunders, 2003. "Bank Borrowers and Loan Sales: New Evidence on the Uniqueness of Bank Loans," The Journal of Business, University of Chicago Press, vol. 76(4), pages 563-582, October.
    12. Blanes, J. Vicente & Busom, Isabel, 2004. "Who participates in R&D subsidy programs?: The case of Spanish manufacturing firms," Research Policy, Elsevier, vol. 33(10), pages 1459-1476, December.
    13. Bharath, Sreedhar & Dahiya, Sandeep & Saunders, Anthony & Srinivasan, Anand, 2007. "So what do I get? The bank's view of lending relationships," Journal of Financial Economics, Elsevier, vol. 85(2), pages 368-419, August.
    14. Feldman, Maryann P. & Kelley, Maryellen R., 2006. "The ex ante assessment of knowledge spillovers: Government R&D policy, economic incentives and private firm behavior," Research Policy, Elsevier, vol. 35(10), pages 1509-1521, December.
    15. Edwin Mansfield & John Rapoport & Anthony Romeo & Samuel Wagner & George Beardsley, 1977. "Social and Private Rates of Return from Industrial Innovations," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 91(2), pages 221-240.
    16. Carter, Richard B & Manaster, Steven, 1990. "Initial Public Offerings and Underwriter Reputation," Journal of Finance, American Finance Association, vol. 45(4), pages 1045-1067, September.
    17. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626, National Bureau of Economic Research, Inc.
    18. Amir Sufi, 2007. "Information Asymmetry and Financing Arrangements: Evidence from Syndicated Loans," Journal of Finance, American Finance Association, vol. 62(2), pages 629-668, April.
    19. Tuomas Takalo & Tanja Tanayama, 2010. "Adverse selection and financing of innovation: is there a need for R&D subsidies?," The Journal of Technology Transfer, Springer, vol. 35(1), pages 16-41, February.
    20. Christine T. Ennew & Martin R. Binks, 1995. "The Provision of Finance to Small Businesses: Does the Banking Relationship Constrain Performance," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 4(1), pages 57-73, Spring.
    21. Saul Lach, 2002. "Do R&D Subsidies Stimulate or Displace Private R&D? Evidence from Israel," Journal of Industrial Economics, Wiley Blackwell, vol. 50(4), pages 369-390, December.
    22. Josh Lerner, 2002. "When Bureaucrats Meet Entrepreneurs: The Design of Effective "Public Venture Capital" Programmes," Economic Journal, Royal Economic Society, vol. 112(477), pages 73-84, February.
    23. Klette, Tor Jakob & Moen, Jarle & Griliches, Zvi, 2000. "Do subsidies to commercial R&D reduce market failures? Microeconometric evaluation studies1," Research Policy, Elsevier, vol. 29(4-5), pages 471-495, April.
    24. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
    25. Edward I. Altman, 1968. "Financial Ratios, Discriminant Analysis And The Prediction Of Corporate Bankruptcy," Journal of Finance, American Finance Association, vol. 23(4), pages 589-609, September.
    26. Giudici, Giancarlo & Paleari, Stefano, 2000. "The Provision of Finance to Innovation: A Survey Conducted among Italian Technology-Based Small Firms," Small Business Economics, Springer, vol. 14(1), pages 37-53, February.
    27. repec:bla:jfinan:v:59:y:2004:i:4:p:1805-1844 is not listed on IDEAS
    28. Leland, Hayne E & Pyle, David H, 1977. "Informational Asymmetries, Financial Structure, and Financial Intermediation," Journal of Finance, American Finance Association, vol. 32(2), pages 371-387, May.
    29. Edward I. Altman, 1968. "The Prediction Of Corporate Bankruptcy: A Discriminant Analysis," Journal of Finance, American Finance Association, vol. 23(1), pages 193-194, March.
    30. Titman, Sheridan & Trueman, Brett, 1986. "Information quality and the valuation of new issues," Journal of Accounting and Economics, Elsevier, vol. 8(2), pages 159-172, June.
    31. Haeussler, Caroline & Harhoff, Dietmar & Müller, Elisabeth, 2009. "To Be Financed or Not... - The Role of Patents for Venture Capital Financing," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 253, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    32. Ron Jarmin, 1999. "Government Technical Assistance Programs* And Plant Survival: The Role Of Plant Ownership Type," Working Papers 99-2, Center for Economic Studies, U.S. Census Bureau.
    33. Jun Qian & Philip E. Strahan, 2007. "How Laws and Institutions Shape Financial Contracts: The Case of Bank Loans," Journal of Finance, American Finance Association, vol. 62(6), pages 2803-2834, December.
    34. de Haan, Leo & Hinloopen, Jeroen, 2003. "Preference hierarchies for internal finance, bank loans, bond, and share issues: evidence for Dutch firms," Journal of Empirical Finance, Elsevier, vol. 10(5), pages 661-681, December.
    35. Klette, T.J. & Moen, J. & Griliches, Z., 1999. "Do Subsidies to Commercial R&D Reduce Market Failures? Microeconometric Evaluation Studies," Papers 16/99, Norwegian School of Economics and Business Administration-.
    36. Michael Lubatkin & John Florin & William S. Schulze, 2003. "A social capital model of high growth ventures," Post-Print hal-02311715, HAL.
    37. Richard R. Nelson, 1959. "The Simple Economics of Basic Scientific Research," Journal of Political Economy, University of Chicago Press, vol. 67(3), pages 297-297.
    38. Robert E. Carpenter & Bruce C. Petersen, 2002. "Capital Market Imperfections, High-Tech Investment, and New Equity Financing," Economic Journal, Royal Economic Society, vol. 112(477), pages 54-72, February.
    39. Himmelberg, Charles P & Petersen, Bruce C, 1994. "R&D and Internal Finance: A Panel Study of Small Firms in High-Tech Industries," The Review of Economics and Statistics, MIT Press, vol. 76(1), pages 38-51, February.
    40. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
    41. Diamond, Douglas W., 1993. "Seniority and maturity of debt contracts," Journal of Financial Economics, Elsevier, vol. 33(3), pages 341-368, June.
    42. repec:bla:jfinan:v:43:y:1988:i:1:p:1-19 is not listed on IDEAS
    43. Robert E. Carpenter & Bruce C. Petersen, 2002. "Is The Growth Of Small Firms Constrained By Internal Finance?," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 298-309, May.
    44. Harris, Milton & Raviv, Artur, 1991. "The Theory of Capital Structure," Journal of Finance, American Finance Association, vol. 46(1), pages 297-355, March.
    45. Haeussler, Carolin & Harhoff, Dietmar & Mueller, Elisabeth, 2009. "To Be Financed or Not … - The Role of Patents for Venture Capital Financing," Discussion Papers in Business Administration 8970, University of Munich, Munich School of Management.
    46. Douglas W. Diamond, 1991. "Debt Maturity Structure and Liquidity Risk," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(3), pages 709-737.
    47. Mark Freel, 2007. "Are Small Innovators Credit Rationed?," Small Business Economics, Springer, vol. 28(1), pages 23-35, January.
    48. Harhoff, Dietmar & Korting, Timm, 1998. "Lending relationships in Germany - Empirical evidence from survey data," Journal of Banking & Finance, Elsevier, vol. 22(10-11), pages 1317-1353, October.
    49. Paul Westhead & David Storey, 1997. "Financial constraints on the growth of high technology small firms in the United Kingdom," Applied Financial Economics, Taylor & Francis Journals, vol. 7(2), pages 197-201.
    50. Hall, John & Hofer, Charles W., 1993. "Venture capitalists' decision criteria in new venture evaluation," Journal of Business Venturing, Elsevier, vol. 8(1), pages 25-42, January.
    51. Esty, Benjamin C. & Megginson, William L., 2003. "Creditor Rights, Enforcement, and Debt Ownership Structure: Evidence from the Global Syndicated Loan Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 38(1), pages 37-60, March.
    52. Kamien, Morton I & Schwartz, Nancy L, 1978. "Self-Financing of an R&D Project," American Economic Review, American Economic Association, vol. 68(3), pages 252-261, June.
    53. Marsh, Paul, 1982. "The Choice between Equity and Debt: An Empirical Study," Journal of Finance, American Finance Association, vol. 37(1), pages 121-144, March.
    54. Lerner, Josh, 1999. "The Government as Venture Capitalist: The Long-Run Impact of the SBIR Program," The Journal of Business, University of Chicago Press, vol. 72(3), pages 285-318, July.
    55. Michael Lubatkin & John Florin & William S. Schulze, 2003. "A social capital model of high growth ventures," Post-Print hal-02276699, HAL.
    56. Girma, Sourafel & Görg, Holger & Strobl, Eric, 2003. "Government Grants, Plant Survival and Employment Growth: A Micro-Econometric Analysis," IZA Discussion Papers 838, Institute of Labor Economics (IZA).
    57. Megginson, William L & Weiss, Kathleen A, 1991. "Venture Capitalist Certification in Initial Public Offerings," Journal of Finance, American Finance Association, vol. 46(3), pages 879-903, July.
    58. Harhoff, Dietmar & Körting, Timm, 1998. "Lending Relationships in Germany: Empirical Results from Survey Data," CEPR Discussion Papers 1917, C.E.P.R. Discussion Papers.
    59. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(3), pages 488-500.
    60. Storey, D. J. & Tether, B. S., 1998. "Public policy measures to support new technology-based firms in the European Union," Research Policy, Elsevier, vol. 26(9), pages 1037-1057, April.
    61. V. K. Narayanan & George E. Pinches & Kathryn M. Kelm & Diane M. Lander, 2000. "The influence of voluntarily disclosed qualitative information," Strategic Management Journal, Wiley Blackwell, vol. 21(7), pages 707-722, July.
    62. Czarnitzki, Dirk & Fier, Andreas, 2001. "Do R&D subsidies matter? Evidence for the German service sector," ZEW Discussion Papers 01-19, ZEW - Leibniz Centre for European Economic Research.
    63. Ranjay Gulati & Monica C. Higgins, 2003. "Which ties matter when? the contingent effects of interorganizational partnerships on IPO success," Strategic Management Journal, Wiley Blackwell, vol. 24(2), pages 127-144, February.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Andrea Bellucci & Luca Pennacchio & Alberto Zazzaro, 2019. "R&D Subsidies and Firms’ Debt Financing," CSEF Working Papers 527, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    2. Valérie Revest & Alessandro Sapio, 2012. "Financing technology-based small firms in Europe: what do we know?," Small Business Economics, Springer, vol. 39(1), pages 179-205, July.
    3. Silva Filipe & Carreira Carlos, 2017. "Financial Constraints: Do They Matter to Allocate R&D Subsidies?," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 17(4), pages 1-26, October.
    4. Kwangsoo Shin & Minkyung Choy & Chul Lee & Gunno Park, 2019. "Government R&D Subsidy and Additionality of Biotechnology Firms: The Case of the South Korean Biotechnology Industry," Sustainability, MDPI, vol. 11(6), pages 1-22, March.
    5. Colombo, Massimo G. & Croce, Annalisa & Guerini, Massimiliano, 2013. "The effect of public subsidies on firms’ investment–cash flow sensitivity: Transient or persistent?," Research Policy, Elsevier, vol. 42(9), pages 1605-1623.
    6. Bellucci, Andrea & Pennacchio, Luca & Zazzaro, Alberto, 2023. "Debt financing of SMEs: The certification role of R&D Subsidies," International Review of Financial Analysis, Elsevier, vol. 90(C).
    7. Felipe Rojas & Elena Huergo, 2016. "Characteristics of entrepreneurs and public support for NTBFs," Small Business Economics, Springer, vol. 47(2), pages 363-382, August.
    8. Tom Vanacker & Sophie Manigart, 2010. "Pecking order and debt capacity considerations for high-growth companies seeking financing," Small Business Economics, Springer, vol. 35(1), pages 53-69, July.
    9. Bertoni, Fabio & Martí, Jose & Reverte, Carmelo, 2019. "The impact of government-supported participative loans on the growth of entrepreneurial ventures," Research Policy, Elsevier, vol. 48(1), pages 371-384.
    10. Neville, Conor & Lucey, Brian M., 2022. "Financing Irish high-tech SMEs: The analysis of capital structure," International Review of Financial Analysis, Elsevier, vol. 83(C).
    11. De Maeseneire, Wouter & Claeys, Tine, 2012. "SMEs, foreign direct investment and financial constraints: The case of Belgium," International Business Review, Elsevier, vol. 21(3), pages 408-424.
    12. Guerini, Massimiliano & Quas, Anita, 2016. "Governmental venture capital in Europe: Screening and certification," Journal of Business Venturing, Elsevier, vol. 31(2), pages 175-195.
    13. José Ángel Zúñiga-Vicente & César Alonso-Borrego & Francisco J. Forcadell & José I. Galán, 2014. "Assessing The Effect Of Public Subsidies On Firm R&D Investment: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 28(1), pages 36-67, February.
    14. Giraudo, Emanuele & Giudici, Giancarlo & Grilli, Luca, 2019. "Entrepreneurship policy and the financing of young innovative companies: Evidence from the Italian Startup Act," Research Policy, Elsevier, vol. 48(9), pages 1-1.
    15. Fabio Bertoni & María Ferrer & José Martí, 2013. "The different roles played by venture capital and private equity investors on the investment activity of their portfolio firms," Small Business Economics, Springer, vol. 40(3), pages 607-633, April.
    16. Dirk Czarnitzki & Julie Delanote, 2015. "R&D policies for young SMEs: input and output effects," Small Business Economics, Springer, vol. 45(3), pages 465-485, October.
    17. Harvey, Campbell R. & Lins, Karl V. & Roper, Andrew H., 2004. "The effect of capital structure when expected agency costs are extreme," Journal of Financial Economics, Elsevier, vol. 74(1), pages 3-30, October.
    18. Czarnitzki, Dirk & Hottenrott, Hanna, 2012. "Collaborative R&D as a strategy to attenuate financing constraints," ZEW Discussion Papers 12-049, ZEW - Leibniz Centre for European Economic Research.
    19. Hanna Hottenrott & Bettina Peters, 2012. "Innovative Capability and Financing Constraints for Innovation: More Money, More Innovation?," The Review of Economics and Statistics, MIT Press, vol. 94(4), pages 1126-1142, November.
    20. Demeulemeester, Sarah & Hottenrott, Hanna, 2015. "R&D subsidies and firms' cost of debt," DICE Discussion Papers 201, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).

    More about this item

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:vlg:vlgwps:2008-12. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Isabelle Vandenbroere (email available below). General contact details of provider: https://edirc.repec.org/data/vlgmsbe.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.