The impact of firm financing constraints on R&D over the business cycle

Kadri Männasoo and Jaanika Meriküll

No wp2015-3, Bank of Estonia Working Papers from Bank of Estonia

Abstract: This paper studies financing constraints on R&D over the most recent boom and bust episode in Central and Eastern Europe (CEE). Given that financial and venture capital markets in CEE are thin in comparison to those in high-income economies and that many of CEE countries experienced a credit crunch during the last recession, it is proposed that financing constraints have a significant adverse effect on R&D activity in these countries. The paper uses two complementary firm-level data-sources from ten CEE countries. We find that financing constraints have a substantial effect on R&D expenditures, as the probability of credit constrained firms undertaking R&D activities is around 70% lower than for other firms and firms� R&D expenditure sensitivity to cash flow is very high. Despite the severity of the crisis, the adverse effect of financing constraints for R&D did not increase during the financial crisis. We also find that, conditional on credit constraints, firms� R&D activity is higher during a recession

Keywords: R&D financing constraints; credit constraints; business cycle; Central and Eastern Europe (search for similar items in EconPapers)
JEL-codes: E32 O16 O32 O52 P23 (search for similar items in EconPapers)
Date: 2015-12-30, Revised 2015-12-30
New Economics Papers: this item is included in nep-eur, nep-ino, nep-mac, nep-sbm, nep-tid and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: The impact of firm financing constraints on R&D over the business cycle (2015)
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