Self-Financing of Traditional and R&D Investments: Evidence from Italian SMEs

Quaderni Working Paper No. 845

37 Pages Posted: 6 Sep 2012

See all articles by Paola Brighi

Paola Brighi

University of Bologna - Department of Management

Roberto Patuelli

University of Bologna - Department of Economics

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 6, 2012

Abstract

Self-financing has often been seen as an important source for research-and-development (R&D) funding. However, an in-depth comparison between the determinants of self-financing in the case of traditional investments versus those in R&D has not been provided yet. We use a comprehensive data set of Italian manufacturing firms to investigate this issue. We analyze the role of a wide number of financial variables in driving the rate of self-financing of firms, in both traditional and R&D investments, and we focus on public subsidies and firm size as critical factors explaining heterogeneity. First, we perform logit and logistic regressions separately for traditional and R&D self-financing, finding that they are positively correlated, and that the availability of public subsidies reduces self-financing. Subsequent poolability tests show that public subsidies and firm size are crucial discriminating factors for self-financing behavior. Our main finding is that, in the absence of public subsidies, no internal or external market variable is able to explain the firms’ financing decisions. Furthermore, our analyses generally show that credit constraints and banking relationship variables are relevant in determining traditional investment self-financing, while no clear statistical evidence is found in the R&D case. Credit rationing is not significant for R&D self financing, which may be explained by rationed firms being left out of our sample.

Keywords: SMEs, R&D investments, corporate structure, poolability test

JEL Classification: D45, D82, E51, G21, G32, O32

Suggested Citation

Brighi, Paola and Patuelli, Roberto and Torluccio, Giuseppe, Self-Financing of Traditional and R&D Investments: Evidence from Italian SMEs (September 6, 2012). Quaderni Working Paper No. 845, Available at SSRN: https://ssrn.com/abstract=2142373 or http://dx.doi.org/10.2139/ssrn.2142373

Paola Brighi (Contact Author)

University of Bologna - Department of Management ( email )

Via Capo di Lucca 34
Bologna 40126
Italy

Roberto Patuelli

University of Bologna - Department of Economics ( email )

via Anghera' 22
Rimini, 47921
Italy
+39-0541-434276 (Phone)
+39-02-700419665 (Fax)

HOME PAGE: http://https://sites.google.com/site/patuellihomepage/

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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