Interest rates, R&D investment and the distortionary effects of R&D incentives

Uluc Aysun and Zeynep Yom

No 37, Villanova School of Business Department of Economics and Statistics Working Paper Series from Villanova School of Business Department of Economics and Statistics

Abstract: This paper conducts the first analysis of how interest rates are related to firms' allocation of investment between R&D and non-R&D activities and how R&D incentives alter this relationship. It theoretically predicts that if firms receive incentives mostly in the form of grants and subsidies that reduce their dependence on external finance, their share of R&D spending increases (decreases) during a credit tightening (easing). Conversely, if tax credits are the primary incentive, rms' decrease (increase) their share of R&D spending during a credit tightening (easing). The paper demonstrates empirical support for these predictions by using rm-level financial and sector-level R&D incentives data and a unique methodology that focuses on the within firm allocation of investment.

Keywords: R&D; finance; grants; tax credits; COMPUSTAT (search for similar items in EconPapers)
JEL-codes: D22 G31 G32 O31 O38 (search for similar items in EconPapers)
Date: 2017-11
New Economics Papers: this item is included in nep-cfn, nep-ino and nep-tid
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http://repec.library.villanova.edu/workingpapers/VSBEcon37.pdf (application/pdf)

Related works:
Journal Article: Interest rates, R&D investment and the distortionary effects of R&D incentives (2019)
Working Paper: Interest rates, R&D investment and the distortionary effects of R&D incentives (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:vil:papers:37

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