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

Bettina Peters (), Mark Roberts () and Vuong Van Anh

No 22035, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: O3 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-acc, nep-com, nep-cse, nep-ino, nep-sbm and nep-tid
Date: 2016-02
Note: PR
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Published as Bettina Peters & Mark J. Roberts & Van Anh Vuong, 2017. "Dynamic R&D choice and the impact of the firm's financial strength," Economics of Innovation and New Technology, vol 26(1-2), pages 134-149.

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Related works:
Journal Article: Dynamic R&D choice and the impact of the firm's financial strength (2017) Downloads
Working Paper: Dynamic R&D Choice and the Impact of the Firm's Financial Strength (2016) Downloads
Working Paper: Dynamic R&D choice and the impact of the firm's financial strength (2015) Downloads
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