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Firm R&D and Financial Analysis: How Do They Interact?

Jim Goldman and Joel Peress ()

No 12433, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Entrepreneurs undertake more R&D when financiers are better informed about their projects because they expect to receive more funding for successful projects. Conversely, financiers learn more about projects when entrepreneurs perform more R&D because then the opportunity cost of mis-investing is higher. Thus R&D and financial analysis are mutually reinforcing. Evidence based on two quasi-natural experiments supports this interaction. Quantitatively, investors' learning accounts for over a quarter of the total effect of a policy designed to stimulate R&D. A calibration suggests that the interaction's contribution to income growth represents a third of the total contributions of learning and R&D.

Keywords: capital allocation; Financial Development; growth; Innovation; learning; technological progress (search for similar items in EconPapers)
JEL-codes: G20 O31 O4 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ent, nep-fdg, nep-ino, nep-ppm and nep-sbm
Date: 2017-11
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