Firm R&D and Financial Analysis: How Do They Interact?

73 Pages Posted: 17 Nov 2017

See all articles by Jim Goldman

Jim Goldman

University of Toronto

Joel Peress

INSEAD - Finance

Multiple version iconThere are 2 versions of this paper

Date Written: November 2017


Entrepreneurs undertake more R&D when financiers are better informed about their projects because they expect to receive more funding for successful projects. Conversely, financiers learn more about projects when entrepreneurs perform more R&D because then the opportunity cost of mis-investing is higher. Thus R&D and financial analysis are mutually reinforcing. Evidence based on two quasi-natural experiments supports this interaction. Quantitatively, investors' learning accounts for over a quarter of the total effect of a policy designed to stimulate R&D. A calibration suggests that the interaction's contribution to income growth represents a third of the total contributions of learning and R&D.

Keywords: capital allocation, Financial Development, growth, Innovation, learning, technological progress

JEL Classification: G20, O31, O4

Suggested Citation

Goldman, Jim and Peress, Joel, Firm R&D and Financial Analysis: How Do They Interact? (November 2017). CEPR Discussion Paper No. DP12433. Available at SSRN:

Jim Goldman (Contact Author)

University of Toronto ( email )

Department of Economics
Toronto, Ontario M5S 3G7

Joel Peress

INSEAD - Finance ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
+33 1 60 72 40 00 (Phone)
+33 1 60 72 40 45 (Fax)

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