Investment, R&D and financial constraints in Britain and Germany

Arbeitspapier

This paper tests for the importance of cash flow on investment in fixed capital and R&D using firm-level panel data in two countries between 1985 and 1994. For German firms, cash flow is not informative in simple econometric models of fixed investment or R&D. In identical pecifications for British firms, cash flow is informative about investment, although not about the level of R&D spending conditional on the R&D participation decision. In the UK, we also find that investment is less sensitive to cash flow for R&D-performing firms, and that cash flow predicts whether firms perform R&D or not. We confirm that these differences do not simply reflect a greater role for current cash flow in forecasting future sales. These results suggest that financial constraints are more significant in Britain, that they affect the decision to engage in R&D rather than the level of R&D spending by participants, and that consequently the British firms that do engage in R&D are a self-selected group where financing constraints tend to be less binding.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IFS Working Papers ; No. W99/05

Classification and Topics

• Classification: Wirtschaft ; Innovation and Invention: Processes and Incentives ; Single Equation Models; Single Variables: Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities ; Oligopoly and Other Imperfect Markets

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bond, Steve ; Harhoff, Dietmar ; Reenen, John Van
• Event: Veröffentlichung
• (who): Institute for Fiscal Studies (IFS)
• (where): London
• (when): 1999

Further information

• DOI: doi:10.1920/wp.ifs.1999.9905
• Handle: http://hdl.handle.net/10419/90856
• Last update: 10.03.2025, 11:44 AM CET