Does Cash Flow Cause Investment and R&D?: An Exploration Using Panel Data for French, Japanese, and United States Scientific Firms

IFS Paper No. W98/11; Nuffield College Paper No. 142; Berkeley Dept. of Economics Paper No. 98-260

37 Pages Posted: 13 Aug 1998

See all articles by Bronwyn H. Hall

Bronwyn H. Hall

University of California at Berkeley; National Bureau of Economic Research (NBER); Institute for Fiscal Studies (IFS); Max Planck Institute for Innovation and Competition

Jacques Mairesse

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST); Maastricht University - United Nations and Maastricht Economic Research Institute on Innovation and Technology (UNU-MERIT); National Bureau of Economic Research (NBER)

Lee Branstetter

Carnegie Mellon University - H. John Heinz III School of Public Policy and Management; National Bureau of Economic Research (NBER)

Bruno Crepon

National Institute of Statistics and Economic Studies (INSEE) - National School for Statistical and Economic Administration (ENSAE); IZA Institute of Labor Economics

Date Written: April 1, 1998

Abstract

The role of financial institutions and corporate governance in the conduct and performance of industrial firms, especially in the area of technological innovation and international competition, has been hotly debated in the recent past. The results presented here are a contribution to the empirical evidence on the behavior of individual firms that operate in somewhat different institutional environments. Using a Panel Data version of the Vector Auto Regressive (VAR) methodology, we test for the causal relationship among sales and cash flow on the one hand and investment and R&D on the other in three large panels of firms in the scientific (high technology) sectors in the United States, France, and Japan. Our findings are that both investment and R&D are more highly sensitive to cash flow and sales in the United States than in France and Japan. Correspondingly, investment and R&D predict both cash flow and sales positively in the United States, while their impact is somewhat more mixed in the other countries.

JEL Classification: G34, O32

Suggested Citation

Hall, Bronwyn H. and Mairesse, Jacques and Branstetter, Lee and Crepon, Bruno, Does Cash Flow Cause Investment and R&D?: An Exploration Using Panel Data for French, Japanese, and United States Scientific Firms (April 1, 1998). IFS Paper No. W98/11; Nuffield College Paper No. 142; Berkeley Dept. of Economics Paper No. 98-260. Available at SSRN: https://ssrn.com/abstract=105089 or http://dx.doi.org/10.2139/ssrn.105089

Bronwyn H. Hall (Contact Author)

University of California at Berkeley ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States

HOME PAGE: http://emlab.berkeley.edu/users/bhhall/index.html

National Bureau of Economic Research (NBER)

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Institute for Fiscal Studies (IFS)

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Max Planck Institute for Innovation and Competition

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Jacques Mairesse

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST) ( email )

15 Boulevard Gabriel Peri
Malakoff Cedex, 1 92245
France

Maastricht University - United Nations and Maastricht Economic Research Institute on Innovation and Technology (UNU-MERIT)

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Netherlands

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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Lee Branstetter

Carnegie Mellon University - H. John Heinz III School of Public Policy and Management ( email )

Pittsburgh, PA 15213-3890
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Bruno Crepon

National Institute of Statistics and Economic Studies (INSEE) - National School for Statistical and Economic Administration (ENSAE) ( email )

92245 Malakoff Cedex
France

IZA Institute of Labor Economics

P.O. Box 7240
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Germany

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