NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Dynamic R&D Choice and the Impact of the Firm's Financial Strength

Bettina Peters, Mark J. Roberts, Van Anh Vuong

NBER Working Paper No. 22035
Issued in February 2016
NBER Program(s):PR

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.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Access to NBER Papers

You are eligible for a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

E-mail:

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w22035

Users who downloaded this paper also downloaded* these:
Peters, Roberts, Vuong, and Fryges w19374 Estimating Dynamic R&D Demand: An Analysis of Costs and Long-Run Benefits
De Loecker and Van Biesebroeck w21994 Effect of International Competition on Firm Productivity and Market Power
Moser w21964 Patents and Innovation in Economic History
Anzoategui, Comin, Gertler, and Martinez w22005 Endogenous Technology Adoption and R&D as Sources of Business Cycle Persistence
Bilir and Morales w22160 Innovation in the Global Firm
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us