Internal Vs. External Financing of R&D

Posted: 24 Nov 2009

See all articles by Spiros Bougheas

Spiros Bougheas

University of Nottingham - School of Economics

Date Written: 2004


The empirical evidence suggests that while small firms in United States, United Kingdom and Canada rely on internal funds for financing R&D, similar firms in Japan, Germany and France have access to bank loans. In this paper, we analyze the financial decisions of small firms willing to invest in R&D. We find that their high ratio of intangible assets, along with the high risk nature of their investments, can explain their inability to raise debt in external capital markets. We also show that financing R&D with bank loans might be feasible, especially, if banks are willing to monitor the investment activities of their clients. (Publication abstract)

Keywords: R&D, Financing, Management decisions, Bank loans, High technology firms

Suggested Citation

Bougheas, Spiros, Internal Vs. External Financing of R&D (2004). Small Business Economics, Vol. 22, Issue 1, p. 11-17 2004. Available at SSRN:

Spiros Bougheas (Contact Author)

University of Nottingham - School of Economics ( email )

University Park
Nottingham, NG7 2RD
United Kingdom

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