Dynamic R&D Choice and the Impact of the Firm's Financial Strength

Bettina Peters (), Mark Roberts and Van Anh Vuong ()
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Van Anh Vuong: University of Cologne and Institute of Energy Economics

No 440, Working Paper Series in Economics and Institutions of Innovation from Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies

Abstract: This article investigates how a firm's financial strength affects its dynamic decision to invest in R&D. We estimate a dynamic model of R&D choice using data for German firms in high-tech manufacturing industries. The model incorporates a measure of the firm's financial strength, derived from its credit rating, which is shown to lead to substantial differences in estimates of the costs and expected long-run benefits from R&D investment. Financially strong firms have a higher probability of generating innovations from their R&D investment, and the innovations have a larger impact on productivity and profits. Averaging across all firms, the long run benefit of investing in R&D equals 6.6 percent of firm value. It ranges from 11.6 percent for firms in a strong financial position to 2.3 percent for firms in a weaker financial position.

Keywords: R&D choice; financial strength; innovation; productivity; dynamic structural model (search for similar items in EconPapers)
JEL-codes: G30 O31 O32 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2016-06-02
New Economics Papers: this item is included in nep-cfn, nep-com, nep-cse, nep-ino, nep-sbm and nep-tid
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Dynamic R&D choice and the impact of the firm's financial strength (2017)
Working Paper: Dynamic R&D Choice and the Impact of the Firm's Financial Strength (2016)
Working Paper: Dynamic R&D choice and the impact of the firm's financial strength (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:cesisp:0440

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