Dynamic R&D Choice and the Impact of the Firm's Financial Strength
NBER Working Paper No. 22035
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 percent of firm value. It ranges from 11.6 percent for firms in a strong financial position to 2.3 percent for firms in a weaker financial position.
Document Object Identifier (DOI): 10.3386/w22035
Published: Bettina Peters & Mark J. Roberts & Van Anh Vuong, 2017. "Dynamic R&D choice and the impact of the firm's financial strength," Economics of Innovation and New Technology, vol 26(1-2), pages 134-149.
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