Subsidies and innovation in the recent financial crisis

Marek Giebel and Kornelius Kraft

No 21-097, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

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.

Keywords: R&D investment; financing constraints; financial crisis; R&D subsidies (search for similar items in EconPapers)
JEL-codes: G01 G21 G24 G30 O16 O30 O31 O32 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-cfn, nep-ent, nep-fdg, nep-ino and nep-sbm
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:21097

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