Financial cash flows and research and development investment

Takafumi Sasaki

Pacific-Basin Finance Journal, 2016, vol. 39, issue C, 1-15

Abstract: This paper empirically investigates how improvement in financial cash flows affects firms' research and development (R&D) investment using a sample of Japanese manufacturing firms where firms substantially increased cash holdings and reduced outstanding debt. We find that R&D–cash flow sensitivity among financially constrained firms is larger for financial cash flows than for operating cash flows. We also find that among financial cash flows, income gains/losses rather than capital gains/losses significantly affect R&D. These results suggest that improvement in financial cash flows enhance R&D investment by improving the predictable components of cash flows. Furthermore, the results show that decreases in interest payments, rather than increases in interest and dividends income, enhance R&D.

Keywords: Cash flow sensitivity; Financial cash flow; Research and development (search for similar items in EconPapers)
JEL-codes: G32 O32 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:39:y:2016:i:c:p:1-15

DOI: 10.1016/j.pacfin.2016.05.002

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