Arbeitspapier

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

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.

Language
Englisch

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

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

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

DOI
doi:10.1920/wp.ifs.1999.9905
Handle
Last update
10.03.2025, 11:44 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Bond, Steve
  • Harhoff, Dietmar
  • Reenen, John Van
  • Institute for Fiscal Studies (IFS)

Time of origin

  • 1999

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