Effects of financial constraints on research and development investment: an empirical investigation

Neslihan Ozkan

Applied Financial Economics, 2002, vol. 12, issue 11, 827-834

Abstract: This paper investigates the behaviour of research and development (R&D) investment. How sensitive is R&D investmentto available cash flow for financially constrained and unconstrained firms? One important distinction between R&D investment and investment in physical capital is that the result of R&D investment can not serve as collateral, as it may be impossible to put a lien on R&D capital. Given that characteristic, one would expect R&D investment to be sensitive to cash flow, especially for financially constrained firms. Using Hall's Manufacturing Sector Master File, we show that R&D investment is more sensitive to internal finance for financially constrained firms than for financially unconstrained firms in the US manufacturing sector.

Date: 2002
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DOI: 10.1080/09603100110050734

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