Corporate Sustainable Growth and the Financing of Innovation

Economics of Innovation and New Technology, 2005

This paper investigates the cash flow effect on R&D investments for firms in Denmark. Evidence is found that internal funds are important in explaining R&D investments, indicating that R&D investment decisions are affected by credit market imperfections. Cash flow sensitivities are larger both for smaller firms and for firms with low debt relative to assets. Furthermore, this effect is also present after controlling for cash flow's potential role as a predictor of future profitability.

International Journal of Economics and Finance, 2014

This paper examines the association between firm-level research and development (R&D) expenditures and net equity issuance, sales, gross cash flow, the capital to labor ratio, and the growth rate of inflation-adjusted (real) Gross Domestic Product (GDP) in a firm's home country. Dynamic panel models using General Methods of Moments techniques are estimated from an unbalanced sample of firms across the major industrialized economies as well as China and India from 1998 to 2008. Results from the full cross-country panel sample found a significant and positive association between R&D expenditures and sales, net equity issuance and lagged real GDP; a negative association was found with the capital to labor ratio. Macroeconomic growth had a positive impact on R&D expenses in each country but was statistically significant only for firms located in Germany, Great Britain, and the US. Equity capital is found to be a significant source of R&D funding for US firms. However, estimates for non-US firms indicate that capital intensity nor net equity issuance was a consistently significant predictor of R&D expenditures. The latter result may be due to cross-country differences in financial and institutional relationships between capital market and bank-based systems of corporate finance. Finally, this study underscores the importance of including macroeconomic growth in microeconometric panel models of R&D investment.

Economics of Innovation and New Technology, 2003

We study financing patterns of publicly traded R&D-intensive manufacturing firms in Israel. We further characterize R&D-intensive firms by size, physical capital intensity, and whether they issued stocks in the United States, asking whether these features are associated with particular financing patterns. To address these issues, we present, for the first time, adjusted flow of funds charts that treat R&D expenses as a capital outlay (rather than an operating cost that reduces profits, as standard accounting principles prescribe). We also address the question of how R&D inputs should be measured -using R&D expenses or R&D personnel. We construct both expenditure-and personnel-based R&D measures for each firm in our sample, and investigate to what extent these measures are mutually consistent. Hall (2002) further assesses the empirical evidence on the financing of R&D. Most evidence on this issue is from the United States, with some evidence from the United Kingdom, Japan, France, Germany, and Ireland. In recent years, Israel has become a world center of R&D and technological innovation, and it is of interest to investigate financing patterns of R&D firms there.

Journal of Open Innovation: Technology, Market, and Complexity, 2020

This paper examines the sensitivity of firms’ R&D expenditures to being externally financial constrained to undertake innovation projects, considering that being constrained is endogenous. It focuses on devising a model that enable us to explore the combined impact of liquidity constraints, demand shocks, and credit cycle on the cyclically of R&D, controlling by the firms characteristics. The methodology proposed consists of jointly estimating three interrelated equations with mixed distributions of dependent variables. The results obtained complete and improve those of the previous research. It is found that the effect of the business cycle on the perception of external financial constraints is subject to the availability of internal funds in each firm. On the other hand, constrained firms expend in R&D halve of the unconstrained ones, and the sensitivity of firms’ R&D expending to GDP is countercyclical in firms with low cash flows and procyclical in firms with high cash flows. Th...

Journal of Corporate Finance, 2011

The sharp increase in R&D investment in recent decades has important but unexplored implications for corporate liquidity management. Because R&D has high adjustment costs and is financed with volatile sources, it is very expensive for firms to adjust the flow of R&D in response to transitory finance shocks. The main contribution of this paper is to directly examine whether firms use cash reserves to smooth their R&D expenditures. We estimate dynamic R&D models and find that firms most likely to face financing frictions rely extensively on cash holdings to smooth R&D. In particular, our estimates suggest that young firms used cash holdings to dampen the volatility in R&D by approximately 75% during the 1998-2002 boom and bust in equity issues. Firms less likely to face financing frictions appear to smooth R&D without the use of costly cash holdings. Our findings provide new insights into the value of liquidity and the financing of intangible investment, and suggest that R&D smoothing with cash reserves is now important for understanding cash management for a substantial fraction of publicly traded firms.

Working Papers, 2010

In this paper we have estimated a behavioural equation for R&D investment. We assess the impact of liquidity constraints and capabilities, measured respectively as internal cash flow and distance from the technological frontier. Our estimation is performed on an industry level panel ...

1998

The role of financial institutions and corporate governance in the conduct and performanceof industrial firms, especially in the area of technological innovation and international competitionhas been hotly debated in the recent past. The results presented here are a contributionto the empirical evidence on the behavior of individual firms that exist in somewhat di#erentinstitutional environments. Using a Panel Data version of

한국콘텐츠학회논문지, 2015

The purpose of this study is to analyze the influence of the cash flow of pharmaceutical companies on R&D investment. 143 pharmaceutical companies listed in the KOSDAQ market from 2009 to 2013. Financial statements and comments in general and internal transactions were extracted from TS-2000 of the Korea Listed Company Association (KLCA), and data related to stock price was extracted from KISVALUE-Ⅲ of NICE Information Service Co., Ltd. STATA 12.0 was used as the statistical package for panel analysis. The summary of the findings and the interpretation of the significance of this are as follows: First, the current ratio (internal finance) had a positive influence on R&D investment. Second, the debt ratio (external finance) had a negative influence on R&D investment. The pharmaceutical company prefers internal funds to external funds due to the asymmetry of information in the loan markets. In other words, this shows why internal finances have a significant influence on R&D investment at pharmaceutical companies.

Econometric Modeling: Capital Markets - Asset Pricing eJournal, 2015

The paper investigates the R&D impact on the financial value of the company. The first part focuses on the previous findings in the existing literature and the relationships between R&D and earnings, operational performance, revenue growth and market value, in order to evidence the high potential of change in terms of new indicators. The second part includes the empirical analysis using a sample of 103 companies which registered high values of R&D, between 1979 and 2013. Overall, we assume a positive impact of R&D on the corporate value, using a new variable that includes both decision and outcome features.

The B.E. Journal of Macroeconomics, 2017

This paper investigates the impact of output and credit market shocks on R&D spending in advanced economies and builds on the commonly accepted view that credit constraints lead to procyclical R&D spending. A theoretical model is developed where output and credit shocks are treated separately, though these shocks may be highly correlated. The estimation procedure utilizes a panel vector autoregression (VAR) in order to empirically identify the role of credit market shocks separately from the output shocks more commonly studied in the existing literature. The primary empirical findings can be summarized as follows: (1) R&D responds pro-cyclically to output shocks at the macroeconomic level, and (2) R&D co-moves positively with credit. More concretely, the results indicate that negative output shocks induce a simultaneous and subsequent contraction in credit and R&D consistent with a model where credit constraints drive cyclical adjustments to R&D. The impact of output and credit shoc...