Entrepreneurial Finance and the Effects of Restrictions on Government R&D Subsidies
Organization Science, Articles in Advance, pp. primary_article, Forthcoming
40 Pages Posted: 30 Mar 2016 Last revised: 4 Mar 2018
Date Written: March 29, 2016
Entrepreneurial ventures often face liquidity constraints. While governments have intervened with programs subsidizing R&D projects, these programs may have their effectiveness undermined by the restrictions they impose on subsidy recipients. We study the impact on venture outcomes of one important restriction, namely, the prohibition on transferring know-how away from a given geographic area. Using novel data on Israeli startups and evaluating a policy change that relaxed this restriction, we find that the policy change increased the likelihood of applying for a subsidy for startups most likely to have been affected by the restriction. We also show that R&D subsidies had a significant positive effect on startup survival, the ability to attract external investment, and innovation, but only for recipients applying for subsidies after the restriction was relaxed.
Keywords: Entrepreneurial Finance, Government R&D Grants, Grant Restrictions
JEL Classification: O32, D82, G28, G24, M13
Suggested Citation: Suggested Citation