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

Uluc Aysun and Zeynep Kabukcuoglu
Authors registered in the RePEc Author Service: Zeynep Yom ()

European Economic Review, 2019, vol. 111, issue C, 191-210

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, firms decrease (increase) their share of R&D spending during a credit tightening (easing). The paper demonstrates empirical support for these predictions by using firm-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: 2019
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Related works:
Working Paper: Interest rates, R&D investment and the distortionary effects of R&D incentives (2017) Downloads
Working Paper: Interest rates, R&D investment and the distortionary effects of R&D incentives (2017) Downloads
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