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Subsidies and innovation in the recent financial crisis

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  • Giebel, Marek
  • Kraft, Kornelius

Abstract

We analyze the impact of subsidies on R&D expenditures in the financial crisis and beyond. The financial crisis has led to considerable turmoil in financing and, as a result, to restrictions of firms' access to external financing. Utilizing this fact, we identify and analyze financing constraints in two ways. First, firm financing constraints are determined via their credit rating and second, restrictions from the supply side are identified via the firm's main banks capital reserves. The results of our empirical test imply that R&D investments of non-subsidized firms decrease during the crisis. This effect is particularly pronounced for firms that are affected by financing constraints on the firm or bank side. Finally, our results imply that subsidies can at least partially compensate for these negative effects.

Suggested Citation

  • Giebel, Marek & Kraft, Kornelius, 2021. "Subsidies and innovation in the recent financial crisis," ZEW Discussion Papers 21-097, ZEW - Leibniz Centre for European Economic Research.
    • Handle: RePEc:zbw:zewdip:21097
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    More about this item

    Keywords

    R&D investment; financing constraints; financial crisis; R&D subsidies;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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