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Self-Financing of Traditional and R&D Investments: Evidence from Italian SMEs

Paola Brighi (), Roberto Patuelli and Giuseppe Torluccio

Working Paper series from Rimini Centre for Economic Analysis

Abstract: Self-financing has often been seen as an important source for research-and-development (R&D) funding. However, an in-depth comparison between the determinants of self-financing in the case of traditional investments versus those in R&D has not been provided yet. We use a comprehensive data set of Italian manufacturing firms to investigate this issue. We analyse the role of a wide number of financial variables in driving the rate of self-financing of firms, in both traditional and R&D investments, and we focus on public subsidies and firm size as critical factors explaining heterogeneity. First, we perform logit and logistic regressions separately for traditional and R&D self-financing, finding that they are positively correlated, and that the availability of public subsidies reduces self-financing. Subsequent poolability tests show that public subsidies and firm size are crucial discriminating factors for self-financing behaviour. Our main finding is that, in the absence of public subsidies, no internal or external market variable is able to explain the firms' financing decisions. Furthermore, our analyses generally show that credit constraints and banking relationship variables are relevant in determining traditional investment self-financing, while no clear statistical evidence is found in the R&D case. Credit rationing is not significant for R&D self-financing, which may be explained by rationed firms being left out of our sample.

Keywords: SMEs; R&D investments; Corporate structure; Poolability test (search for similar items in EconPapers)
JEL-codes: D45 D82 E51 G21 G32 O32 (search for similar items in EconPapers)
Date: 2012-08
New Economics Papers: this item is included in nep-acc, nep-ent, nep-eur, nep-ino and nep-sbm
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