Demand shocks and firm-financed R&D expenditures

Matthew Rafferty and Mark Funk

Applied Economics, 2004, vol. 36, issue 14, 1529-1536

Abstract: Business cycles might affect firms' ability and incentive to perform R&D. Firms finance most R&D activities out of cash flow so when cash flow decreases the funds available for R&D also decreases. This limits the ability of firms to perform R&D, potentially leading to reduced R&D expenditures during recessions. However, business cycles also influence the incentive to perform R&D. The opportunity cost of funds devoted to R&D falls during recessions since the return on production will likely be lower than during an expansion. During recessions, this provides firms with an incentive to redistribute an existing pool of funds away from production and towards R&D projects. This paper tests whether the business cycle influences the incentive and ability of firms to engage in R&D activities, in particular examining whether the response is symmetric across the business cycle.

Date: 2004
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

Downloads: (external link)
http://www.tandfonline.com/doi/abs/10.1080/0003684042000217959 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:applec:v:36:y:2004:i:14:p:1529-1536

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAEC20

DOI: 10.1080/0003684042000217959

Access Statistics for this article

Applied Economics is currently edited by Anita Phillips

More articles in Applied Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().