Abstract
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 language | English (US) |
|---|---|
| Pages (from-to) | 134-149 |
| Number of pages | 16 |
| Journal | Economics of Innovation and New Technology |
| Volume | 26 |
| Issue number | 1-2 |
| DOIs | |
| State | Published - Feb 17 2017 |
All Science Journal Classification (ASJC) codes
- General Economics, Econometrics and Finance
- Management of Technology and Innovation
