Abstract
In this paper we analyse the effect of ownership on the response of firms’ R&D expenditures to the business cycle, using a panel dataset of Spanish manufacturing firms for the period 1990–2006. Following Aghion et al. (2012, Journal of the European Economic Association), we allow the impact of the business cycle on firms’ R&D expenditures to depend upon credit constraints, but we extend their analysis by considering the moderating effect of different firms’ ownership types. We find that firms’ R&D spending is countercyclical but that credit constraints may reverse this counter cyclicality, in line with previous results in the literature. However, our findings indicate that these results are moderated by firms’ ownership. In particular, in the case of firms that are family owned and firms that are group affiliated, the responsiveness of R&D to the business cycle is considerably less dependent on being credit constrained, especially during recessions.
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Notes
The sampling procedure of the ESEE is the following. Firms with less than 10 employees were excluded from the survey. Firms with 10 to 200 employees were randomly sampled, holding around 5% of the population in 1990. All firms with more than 200 employees were requested to participate, obtaining a participation rate of 70% in 1990. Important efforts are made to minimize attrition and to incorporate annually new firms, so that the sample remains representative over time. See http://www.fundacionsepi.es/esee/sp/spresentacion.asp for further details.
For instance, both Reeb et al. (2001) and Anderson et al. (2003) use credit ratings from Moody’s and S&P to measure the firms’ default risk premium as a proxy for the cost of debt financing. Credit constraints have also been measured by the degree of the firm’s exposure to external finance, such as debt ratios or financial burden (see, e.g., Bernanke et al. 1996). Others, such as Aghion et al. (2012), rely on data on firms’ defaults on trade credits (or payments incidents) reported by French banks.
We consider SMEs as those firms with less than 200 employees and large firms as those with 200 or more employees, to be consistent with the sampling procedure followed by the ESEE, as explained in footnote 3. The reported values of the variables used in the analysis have been weighted to Spanish manufacturing population proportions according to the sampling procedure.
Notice that, in this latter case, the estimated coefficients for the variables interacted with the dummies of ownership have to be interpreted as differential effects with respect to the estimates for the category of ‘other’ firms (the reference category), that is, the estimates of β and γ in equation (1) above.
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Acknowledgments
We would like to thank comments from participants at the Workshop Good Times, Bad Times: Entrepreneurship and the Cycle (Valencia, 2011), the 40th Annual Conference of the European Association for Research in Industrial Economics (Evora, Portugal, 2013), and the XXVIII Jornadas de Economía Industrial (Segovia, 2013). We are also grateful to the Editor and two anonymous reviewers for helpful comments. Financial support from the Spanish Ministry of Science and Innovation (project numbers ECO2011-25033 and ECO2011-30323-C03-02), and from the Generalitat Valenciana (PROMETEO/2009-2013/068) is gratefully acknowledged.
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Beneito, P., Rochina-Barrachina, M.E. & Sanchis-Llopis, A. Ownership and the cyclicality of firms’ R&D investment. Int Entrep Manag J 11, 343–359 (2015). https://doi.org/10.1007/s11365-014-0320-9
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DOI: https://doi.org/10.1007/s11365-014-0320-9