Firm R&D and Financial Analysis: How Do They Interact?
60 Pages Posted: 25 Jul 2016
Date Written: July 25, 2016
Entrepreneurs undertake more R&D when financiers are better informed about their projects because they expect to receive more funding should those projects prove successful.
Financiers learn more about projects when entrepreneurs perform more R&D because then the opportunity cost of misinvesting is higher. Results from two quasi-natural experiments are consistent with this interaction between R&D and learning.
Investors’ learning accounts for a third of the total effect of a policy that stimulates R&D; and a calibration suggests that the R&D-learning interaction’s contribution to income growth represents a third of the total contributions of R&D and learning.
Keywords: Financial Development, Growth, Technological Progress, Innovation, Capital Allocation, Learning
JEL Classification: G20, O31, O4
Suggested Citation: Suggested Citation