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R&D investment and financing constraints of small and medium-sized firms

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Abstract

This study tests for financial constraints on R&D investment and how they differ from capital investment. To identify constraints in the access to external capital, we employ a credit rating index. Our models show that internal constraints, measured by mark-ups, are more decisive for R&D than for capital investment. For external constraints, we find a monotonic relationship between the level of constriction and firm size for both types of investment. Thus, external constraints turn out to be more binding with decreasing firm size. On the contrary, we do not find such monotonic relationships for internal constraints. Differentiation by firms’ age does not support lower constraints for older firms.

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Notes

  1. Stein (2003) provides an overview on the body of literature on how asymmetric information and other agency problems influence corporate investment in general. While there is a large body of research on investment in physical assets, the special case of R&D investment is less thoroughly investigated.

  2. The questionnaire changes every year, and unfortunately the years 1999 and 2000 cannot be used in this study as relevant variables were not part of the survey in these years.

  3. R&D expenditure and capital investment are measured in million “Deutsche Mark” (1 DM ≈ 0.51 EUR).

  4. It should be noted that we use an inverted version of the original rating index for easier interpretation of the estimated effects. The original index ranges from 100 to 600, where 600 represents the worst rating. We simply switch it around so that higher values of the regressor stand for an improved rating. Further, we divided the rating by 100 in the regression models.

  5. We ran all regressions without adding R&D back to PCM. The results were basically identical to the ones reported below.

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Acknowledgments

We are grateful to the team members of the Mannheim Innovation Panel at the Centre for European Economic Research (ZEW) for providing the survey data and to Creditreform for the rating data. We also thank Jürgen Moka for his help in data processing as well as two anonymous referees and the editor for helpful comments.

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Authors and Affiliations

  1. K. U. Leuven, Leuven, Belgium

    Dirk Czarnitzki & Hanna Hottenrott

Authors
  1. Dirk Czarnitzki
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  2. Hanna Hottenrott
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Corresponding author

Correspondence to Dirk Czarnitzki.

Appendix

Appendix

See Tables 7, 8, 9, 10.

Table 7 Estimation results from Tobit regressions on ln(1 + R&D) and ln(1 + INV) and RATING*AGE_CLASS interactions (5,003 observations)
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Table 8 Estimation results from Tobit regressions on ln(1 + R&D) and ln(1 + INV) and RATING*AGE_CLASS interactions for innovators only (4,017 observations)
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Table 9 Estimation results from Tobit regressions on ln(1 + NNOEXP) and ln(1 + INV) and RATING*AGE_CLASS interactions (4,405 observations)
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Table 10 Industry classifications
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Czarnitzki, D., Hottenrott, H. R&D investment and financing constraints of small and medium-sized firms. Small Bus Econ 36, 65–83 (2011). https://doi.org/10.1007/s11187-009-9189-3

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