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The Economics and Econometrics of Innovation pp 399–434Cite as

Are There Financing Constraints for R&D and Investment in German Manufacturing Firms?

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Abstract

Using a newly constructed panel dataset of German enterprises, I estimate R&D and capital investment equations for the time period from 1990 to 1994. Simple accelerator specifications indicate considerable sensitivity of R&D and investment to cash flow for relatively small firms. Much of this effect vanishes once error-correcting behavior is taken into account, but a significant positive relationship between cash flow and investment remains for relatively small firms. In the case of R&D, weak but significant cash flow effects persist both for small and large firms. The evidence from Euler equation estimates is not conclusive. The investment Euler equation for large firms appears to perform relatively well and yields results close to those expected under the null hypothesis of no financing constraints. The estimates from the Euler equation for R&D are not informative. Additional evidence from survey data suggests that the cash flow sensitivity of investment in small firms is likely to reflect financing constraints.

This research has been supported by grants from the German Research Council (DFG) and the ZEW. I would like to thank conference and seminar audiences in Bonn, Strasbourg, Konstanz, Mannheim, at the NBER Summer Institute, the Wissenschaftszentrum Berlin, the EEA meeting in Istanbul, and a DFG workshop in Heidelberg for helpful comments. I am grateful to Wesley Cohen, Christian Dustmann, Zvi Griliches, Martin Hellwig, Bronwyn Hall, Olaf Hübler, Tor Jacob Klette, Jan Pieter Krahnen, Dennis Mueller, Ishaq Nadiri, Manfred Neumann, and Lars- Hendrik Röller for their helpful suggestions. Steve Bond and John Van Reenen were particularly supportive in discussing this work. I also acknowledge insightful and detailed comments made by two anonymous referees and the editor, Francois Laisney. The construction of the database has been competently performed and supported by Christiane Bühler, Marc Dehoust, Andreas Fier, Urs Finger, Lydia Irrgang, Oliver Schmale, and Julia Wienbeck. All remaining errors are my responsibility.

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  1. ZEW, University of Mannheim, CEPR, Germany

    Dietmar Harhoff

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Harhoff, D. (2000). Are There Financing Constraints for R&D and Investment in German Manufacturing Firms?. In: The Economics and Econometrics of Innovation. Springer, Boston, MA. https://doi.org/10.1007/978-1-4757-3194-1_16

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  • DOI: https://doi.org/10.1007/978-1-4757-3194-1_16

  • Publisher Name: Springer, Boston, MA

  • Print ISBN: 978-1-4419-4971-4

  • Online ISBN: 978-1-4757-3194-1

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