Financial Constraints: Routine Versus Cutting Edge R&D Investment

Dirk Czarnitzki A · Hanna Hottenrott

113 citations0/0 files storedJournal of Economics & Management Strategy

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Firm Innovation and Growth Corporate Finance and Governance Innovation Policy and R&D

Abstract

We analyze financial constraints on R&D, where we account for heterogeneity among investments that has been neglected in previous literature. According to economic theory, investments should be distinguished by their degree of uncertainty, e.g. routine R&D versus cutting-edge R&D. Financial constraints should be more binding for cutting-edge R&D than for routine R&D. Using panel data we find that R&D spending of firms devoting a significant fraction of R&D to cutting-edge projects is curtailed by credit constraints while routine R&D investments are not. This has important policy implications with respect to the distribution of R&D subsidies in the economy.

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