Investment and Research and Development at the Firm Level: Does the Source of Financing Matter?

Bronwyn Hall

No 4096, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The elasticity of investment and R&D investment with respect to cash flow is unambiguously positive in a large panel of U.S. manufacturing firms from 1973 to 1987. even with proper controls for permanent differences across firms and for simultaneity. I argue that the evidence favors liquidity constraints rather than just demand effects as the cause of this finding. Other results are that debt is not favored as a form of finance for R&D-intensive firms; leverage ratios and R&D investment are strongly negatively correlated across firms and this is not accounted for by differences in corporate taxation. Finally, the contemporaneous relationship between changes in debt levels and investment which I have previously documented (Hall 1990b and Hall 1991) is one of simultaneity, and apparently transitory, unlike the relationship between cash flow and investment.

Date: 1992-06
Note: CF PR
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Citations: View citations in EconPapers (263)

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Working Paper: Investment and Research and Development at the Firm Level: Does the Source of Financing Matter? (1992)
Working Paper: Investment and Research and Development at the Firm Level: Does the Source of Financing Matter? (1992)
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