Dynamic R&D Choice and the Impact of the Firm's Financial Strength / Bettina Peters, Mark J. Roberts, Van Anh Vuong.

Format:

Book

Author/Creator:

Peters, Bettina.

Contributor:

National Bureau of Economic Research.

Roberts, Mark J.

Vuong, Van Anh.

Series:

Working Paper Series (National Bureau of Economic Research) no. w22035.

NBER working paper series no. w22035

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2016.

Summary:

This article investigates how a firm's financial strength affects its dynamic decision to invest in R&D. We estimate a dynamic model of R&D choice using data for German firms in high-tech manufacturing industries. The model incorporates a measure of the firm's financial strength, derived from its credit rating, which is shown to lead to substantial differences in estimates of the costs and expected long- run benefits from R&D investment. Financially strong firms have a higher probability of generating innovations from their R&D investment, and the innovations have a larger impact on productivity and profits. Averaging across all firms, the long run benefit of investing in R&D equals 6.6 percent of firm value. It ranges from 11.6 percent for firms in a strong financial position to 2.3 percent for firms in a weaker financial position.

Notes:

Print version record

February 2016.