Sources of Finance and In-House R&D: A Study of Electronic Firms in India

Richa Shukla ()
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Richa Shukla: Birla Institute of Technology and Science [BITS Pilani], K. K Birla Goa Campus

A chapter in Eurasian Business and Economics Perspectives, 2022, pp 57-77 from Springer

Abstract: Abstract The study attempts to examine the association between sources of finance and R&D decision of electronic firms operating in India. Based upon the availability of financial information relevant to our study, the random effects estimation is performed for a sample of 101 electronic firms obtained from the CMIE Prowess database for the time period 2002 to 2015. The price-cost margin turns out to be an important determinant of R&D expenditure and R&D intensity. Following the extant literature, the sensitivity of investment decision to an internal source of finance indicates the presence of financing constraints. Given the risk associated with R&D projects, the government may provide tax subsidy since the cost of outside finance is high for such investments. The significance of cash holdings indicates that firms deploy cash holdings for R&D smoothing. As a major portion of R&D expenses is made as payments to skilled manpower, firms tend to smooth their R&D expenses. Among the sources of external finance, access to equity finance is important for R&D. The small start-up in this sector with insufficient reserves and assets may not have access to external finance. Hence, their R&D decision turns out to be sensitive to external equity financing. Tobin’s q is found to be positively related to R&D investment suggesting the possibility of R&D investment by firms envisaging growth opportunities. Firm size captured by total assets appears with a positive and significant coefficient.

Keywords: Electronic; R&D decision; Random effects; Price-cost margin; Cash holdings; Tobin’s q (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/978-3-030-94036-2_4

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