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Research Details
Research and/or Development? Financial Frictions and Innovation Investment
Abstract
U.S. firms have reduced their investment in scientific research (“R”) compared to product development (“D”), raising questions about the returns to each type of investment, and about the reasons for this shift. We use Census data that disaggregates “R” from “D” to study how US firms adjust their innovation investments in response to an external increase in funding cost. Companies with greater demand for refinancing during the 2008 financial crisis, made larger cuts to R&D investment. This reduction in R&D is achieved almost entirely by reducing investment in research. Development remains essentially unchanged. If other firms patenting similar technologies must refinance, however, then Development investment declines. We interpret the latter result as evidence of technological competition: firms are reluctant to cut Development expenditures when that could place them at a disadvantage compared to potential rivals.
Type
Working Paper
Author(s)
Filippo Mezzanotti, Timothy Simcoe
Date Published
2023
Citations
Mezzanotti, Filippo, and Timothy Simcoe. 2023. Research and/or Development? Financial Frictions and Innovation Investment.
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