R&D and Firm Performance in a Transition Economy

Dirk Czarnitzki and Kornelius Kraft

Kyklos, 2006, vol. 59, issue 4, 481-496

Abstract: We estimate the effects of R&D on firms' credit ratings and on financial distress. The main purpose is the comparison of firms in Western Germany and Eastern Germany as a transitional economy. Innovative activity has a positive impact on firm value proxied by ratings in Western Germany, but a negative impact in Eastern Germany. We also consider future financial distress, and find that R&D in Eastern German firms leads to higher default risk. This stands in contrast to Western Germany where R&D enhances future performance. This result is highly politically relevant, since the high level of subsidies present in Eastern Germany may be subject to misallocation.

Date: 2006
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https://doi.org/10.1111/j.1467-6435.2006.00346.x

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Working Paper: R&D and Firm Performance in a Transition Economy (2006)
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