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The Financing of R&D and Innovation

Bronwyn Hall and Josh Lerner ()
Additional contact information
Josh Lerner: Harvard Business School, and NBER

No 2010-012, MERIT Working Papers from United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT)

Abstract: Evidence on the "funding gap" for investment innovation is surveyed. The focus is on financial market reasons for underinvestment that exist even when externality-induced underinvestment is absent. We conclude that while small and new innovative firms experience high costs of capital that are only partly mitigated by the presence of venture capital, the evidence for high costs of R&D capital for large firms is mixed. Neverthless, large established firms do appear to prefer internal funds for financing such investments and they manage their cash flow to ensure this. Evidence shows that there are limits to venture capital as a solution to the funding gap, especially in countries where public equity markets for VC exit are not highly developed. We conclude by suggesting areas for further research.

Keywords: innovation; R&D; financing; liquidity constraints; venture capital; cash flow (search for similar items in EconPapers)
JEL-codes: G24 G32 O32 O38 (search for similar items in EconPapers)
Date: 2010
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https://www.merit.unu.edu/publications/wppdf/2010/wp2010-012.pdf (application/pdf)

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Chapter: The Financing of R&D and Innovation (2010) Downloads
Working Paper: The Financing of R&D and Innovation (2009) Downloads
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