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

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

No 2017-04, Working Papers from University of Central Florida, Department of Economics

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 nance, 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)
Pages: 36 Pages
Date: 2017-11
New Economics Papers: this item is included in nep-cfn and nep-ino
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Interest rates, R&D investment and the distortionary effects of R&D incentives (2019)
Working Paper: Interest rates, R&D investment and the distortionary effects of R&D incentives (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:cfl:wpaper:2017-04

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