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The Importance of Equity Finance for R&D Activity – Are There Differences Between Young and Old Companies?

Elisabeth Müller and Volker Zimmermann
Authors registered in the RePEc Author Service: Elisabeth Mueller ()

Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems from Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich

Abstract: This paper analyzes the importance of equity finance for the R&D activity of small and medium-sized enterprises. We use information on almost 6000 German SMEs from a company survey. Using the intensity of banking competition at the district level as instrument to control for endogeneity, we find that a higher equity ratio is conducive to more R&D for young but not for old companies. Equity may be a constraining factor for young companies which have to rely on the original equity investment of their owners since they have not yet accumulated retained earnings and can relay less on outside financing. The positive influence is found for R&D intensity but not for the decision whether to perform R&D. Equity financing is therefore especially important for the most innovative, young companies.

Keywords: R&D activity; equity finance; small and medium-sized enterprises (search for similar items in EconPapers)
JEL-codes: G32 O32 (search for similar items in EconPapers)
Date: 2006-02
New Economics Papers: this item is included in nep-cse, nep-eec, nep-fmk and nep-tid
References: View references in EconPapers View complete reference list from CitEc
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Persistent link: https://EconPapers.repec.org/RePEc:trf:wpaper:111

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