The Returns to Public Investment in Innovation: Do R&D Grants Influence Corporate Innovation, Performance, and Employment?

46 Pages Posted: 20 Aug 2015 Last revised: 28 Sep 2016

See all articles by Teresa Hogan

Teresa Hogan

Dublin City University Business School

Mark Humphery-Jenner

UNSW Business School; Financial Research Network (FIRN)

Huong Tran Thi Lan

UCD Michael Smurfit Business School; Dublin City University

Ronan Powell

University College Dublin (UCD) - Michael Smurfit Graduate School of Business

Date Written: December 1, 2015

Abstract

We examine the effectiveness of government direct funding of firm innovation through R&D grants on firms future R&D investment, employment, and performance. Using a novel proprietary dataset of 1,825 R&D grants awarded to Irish domiciled firms for the period 2003-2012, we first show that grant ‘winners’ differ significantly from other firms in terms of several firm-level and industry characteristics, confirming that government sponsored grant awarding agencies ‘select’ winners using pre-determined characteristics. We find that grant winners experience a 19.8% higher R&D growth rate than ‘similar’ non-grant winners in the year after winning. The return per Euro invested is about 12 Euro relative to the average non-grant winning firm, but declines to 1.64 when benchmarked against ‘similar’ non-grant winners, suggesting grants help stimulate additional private investment. Grant winners who are not R&D active prior to winning also experience significantly greater increases in total and in-house R&D employment. Further, we report some evidence of improvements in firm ex-post financial performance, but this is conditional on grant winners investing in R&D. We use a propensity-scoring matching (PSM) system and ‘placebo’ tests to help alleviate sample selection and causality concerns.

Keywords: R&D, innovation, grants, export intensity, employment growth

JEL Classification: G31, G38, Q31, Q32

Suggested Citation

Hogan, Teresa and Humphery-Jenner, Mark and Tran Thi Lan, Huong and Powell, Ronan G., The Returns to Public Investment in Innovation: Do R&D Grants Influence Corporate Innovation, Performance, and Employment? (December 1, 2015). 28th Australasian Finance and Banking Conference. Available at SSRN: https://ssrn.com/abstract=2647500 or http://dx.doi.org/10.2139/ssrn.2647500

Teresa Hogan

Dublin City University Business School ( email )

Dublin 9
Ireland

Mark Humphery-Jenner

UNSW Business School ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Huong Tran Thi Lan

UCD Michael Smurfit Business School ( email )

Belfield, Dublin 4 4
Ireland

Dublin City University ( email )

Dublin 9
Ireland

Ronan G. Powell (Contact Author)

University College Dublin (UCD) - Michael Smurfit Graduate School of Business ( email )

Blackrock, Co. Dublin
Ireland

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