Financial Constraints and the Cyclicality of R&D Investment: Evidence from Slovenia

LICOS Discussion Paper No. 239/2009

17 Pages Posted: 7 Jun 2009

See all articles by Simona Bovha Padilla

Simona Bovha Padilla

affiliation not provided to SSRN

Jože P. Damijan

University of Ljubljana, Slovenia - Department of International Economics

Jozef Konings

Catholic University of Leuven (KUL) - LICOS - Centrum voor Transitie-economie; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Date Written: May 2009

Abstract

This paper uses firm level data to show how R&D investment responds to shocks in sales growth in credit constrained firms. A credit constrained firm has to rely on its cash flow and borrowing capacity to survive its short-run liquidity shock when hit by a negative shock. This reduces the possibility for further borrowing in order to invest in non-tangible long term R&D, hence a negative shock should hit R&D investments more in firms that are more credit constrained.

We find that in financially constrained firms sales growth is positively associated with R&D investment, suggesting procyclical behavior of R&D investment in credit constrained firms. In contrast, we find that in firms with no financial constraints R&D investment is negatively correlated with sales growth, suggesting countercyclical behavior of R&D, consistent with the Schumpeterian idea of restructuring.

Furthermore, we find that the firm level response in R&D investment to sales growth is stronger in firms that are more financially dependent, such as firms that are no part of a multinational, firms not receiving subsidies or firms with less collateral.

Keywords: R&D investment, financial constraints, cyclicality

Suggested Citation

Bovha Padilla, Simona and Damijan, Joze P. and Konings, Jozef, Financial Constraints and the Cyclicality of R&D Investment: Evidence from Slovenia (May 2009). LICOS Discussion Paper No. 239/2009 . Available at SSRN: https://ssrn.com/abstract=1414262 or http://dx.doi.org/10.2139/ssrn.1414262

Simona Bovha Padilla

affiliation not provided to SSRN ( email )

Joze P. Damijan

University of Ljubljana, Slovenia - Department of International Economics ( email )

Kardeljeva ploscad 17
Ljubljana, 1000
Slovenia
+386 61 189 24 00 (Phone)
+386 61 189 26 98 (Fax)

Jozef Konings (Contact Author)

Catholic University of Leuven (KUL) - LICOS - Centrum voor Transitie-economie ( email )

Waaistraat 6 - box 3511
Leuven, 3000
Belgium
+32 16 326 589 (Phone)
+32 16 326 599 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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