Research and/or Development? Financial Frictions and Innovation Investment
Filippo Mezzanotti and
Working Papers from U.S. Census Bureau, Center for Economic Studies
U.S. firms have reduced their investment in scientific research (“R”) compared to product development (“D”), raising questions about the returns to each type of investment, and about the reasons for this shift. We use Census data that disaggregates “R” from “D” to study how US firms adjust their innovation investments in response to an external increase in funding cost. Companies with greater demand for refinancing during the 2008 financial crisis, made larger cuts to R&D investment. This reduction in R&D is achieved almost entirely by reducing investment in research. Development remains essentially unchanged. If other firms patenting similar technologies must refinance, however, then Development investment declines. We interpret the latter result as evidence of technological competition: firms are reluctant to cut Development expenditures when that could place them at a disadvantage compared to potential rivals.
Keywords: Research and Development; Financial Crisis; Technology Competition. (search for similar items in EconPapers)
JEL-codes: G30 L20 O31 O32 (search for similar items in EconPapers)
Pages: 56 pages
New Economics Papers: this item is included in nep-cfn, nep-com, nep-fdg, nep-ino, nep-sbm and nep-tid
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https://www2.census.gov/library/working-papers/2023/adrm/ces/CES-WP-23-39.pdf First version, 2023 (application/pdf)
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Persistent link: https://EconPapers.repec.org/RePEc:cen:wpaper:23-39
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