Dynamic R&D choice and the impact of the firm's financial strength

Bettina Peters, Mark J. Roberts, Van Anh Vuong

Research output: Contribution to journalArticlepeer-review

24 Scopus citations


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% of firm value. It ranges from 11.6% for firms in a strong financial position to 2.3% for firms in a weaker financial position.

Original languageEnglish (US)
Pages (from-to)134-149
Number of pages16
JournalEconomics of Innovation and New Technology
Issue number1-2
StatePublished - Feb 17 2017

All Science Journal Classification (ASJC) codes

  • General Economics, Econometrics and Finance
  • Management of Technology and Innovation


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