Financial Constraints and the Cyclicality of R&D Investment:Evidence from Slovenia

Simona Bovha-Padilla, Joze Damijan and Jozef Konings

LICOS Discussion Papers from LICOS - Centre for Institutions and Economic Performance, KU Leuven

Abstract: This paper uses firm level data to show how R&D investment responds to shocks in sales growth in credit constrained firms. A credit constrained firm has to rely on its cash flow and borrowing capacity to survive its short-run liquidity shock when hit by a negative shock. This reduces the possibility for further borrowing in order to invest in non-tangible long term R&D, hence a negative shock should hit R&D investments more in firms that are more credit constrained. We find that in financially constrained firms sales growth is positively associated with R&D investment, suggesting procyclical behavior of R&D investment in credit constrained firms. In contrast, we find that in firms with no financial constraints R&D investment is negatively correlated with sales growth, suggesting countercyclical behavior of R&D, consistent with the Schumpeterian idea of restructuring. Furthermore, we find that the firm level response in R&D investment to sales growth is stronger in firms that are more financially dependent, such as firms that are no part of a multinational, firms not receiving subsidies or firms with less collateral.

Keywords: R&; D investment, financial constraints, cyclicality (search for similar items in EconPapers)
Date: 2009
New Economics Papers: this item is included in nep-ino and nep-mic
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:lic:licosd:23909

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