Managing Corporate Investment and R&D Financing: Are They Really Different?

32 Pages Posted: 23 Sep 2009 Last revised: 5 May 2013

See all articles by Paola Brighi

Paola Brighi

University of Bologna - Department of Management

Rocco Corigliano

University of Bologna - Department of Management

Giuseppe Torluccio

University of Bologna - Department of Management; Università degli studi di Modena e Reggio Emilia (UNIMORE) - Center for Research in Banking and Finance (CEFIN)

Date Written: September 22, 2009

Abstract

The aim of this paper is to identify the different role of financial funds in traditional and R&D investments in Italian firms. Given its intrinsic characteristics, R&D is usually characterized by high information opacity and thus implies, coherently with the asymmetric information theory, greater difficulties in finding external financial funding. The higher risk related to R&D projects could entail some form of financial constraints. However, signaling mechanisms such as self-financing could correct such a market imperfection. The aim of this research is to investigate the determinants of R&D investment internal financial funding (self-financing). Traditional and R&D investments are considered to indicate a possible interaction between different self-financing patterns. Using different econometric models (Logit, OLS and SUR), our results show how information and agency costs, reflected in firm characteristics, affect financing decisions in both traditional and R&D investments. Our findings are consistent with the hypothesis that, in information opaque firms, internal equity plays an important role in R&D financing decisions. To the contrary, traditional investments are less related to self-financing. Public subsidies play a crucial role as a stimulus of R&D and investment self-financing. The overall evidence indicates that banking variables are also more relevant in traditional investments.

Keywords: Corporate Financing, Relationship lending, Capital Structure, R&D, SMEs

JEL Classification: D82, G21, G32, E51

Suggested Citation

Brighi, Paola and Corigliano, Rocco and Torluccio, Giuseppe, Managing Corporate Investment and R&D Financing: Are They Really Different? (September 22, 2009). Available at SSRN: https://ssrn.com/abstract=1476783 or http://dx.doi.org/10.2139/ssrn.1476783

Paola Brighi (Contact Author)

University of Bologna - Department of Management ( email )

Via Capo di Lucca 34
Bologna 40126
Italy

Rocco Corigliano

University of Bologna - Department of Management ( email )

Via Capo di Lucca 34
Bologna, 40126
Italy

Giuseppe Torluccio

University of Bologna - Department of Management ( email )

via Capo di Lucca 34
40126 Bologna
Italy
+39 051 2098085 (Phone)

HOME PAGE: http://WWW.SA.UNIBO.IT

Università degli studi di Modena e Reggio Emilia (UNIMORE) - Center for Research in Banking and Finance (CEFIN) ( email )

via Berengario 51
Modena, modena I-41100
Italy

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