Financing Innovation and Growth: Cash Flow, External Equity, and the 1990s R&amp;D Boom

Brown, James Robert; Fazzari, Steven M.; Petersen, Bruce C.

doi:10.1111/j.1540-6261.2008.01431.x

Cited by 1,499 publications

(906 citation statements)

References 111 publications

(148 reference statements)

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“…A large empirical literature has documented the negative e¤ect of credit constraints on capital investment (Love, 2003), R&D investment (Brown, Fazzari, and Petersen, 2009), and advertising expenses (Fee, Hadlock, and Pierce, 2009), among others. One potentially important alternative channel is investment in human capital through on-the-job training.…”

Section: Introductionmentioning

confidence: 99%

Credit constraints and investment in human capital: Training evidence from transition economies

Popov¹

2014

Journal of Financial Intermediation

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may Alexander PopovIn 2013 all ECB publications feature a motif taken from the €5 banknote.note: This Working Paper should not be reported as representing the views of the European Central Bank (ECB). The views expressed are those of the authors and do not necessarily reflect those of the ECB. AbstractUsing a unique survey database of 8265 …rms from 25 transition economies, I …nd that lack of access to …nance in general, and to bank credit in particular, is associated with signi…cantly lower investment in on-the-job training. This e¤ect is stronger in education-intensive industries and in industries facing good global growth opportunities. To address endogeneity issues, I use the structure of local credit markets as an instrument for credit constraints at the …rm-level. In addition, in panel estimates, I control for the presence of unobserved …rm-level heterogeneity, as well as for changes in macroeconomic conditions. JEL classi…cation: G10, J21, J24, M53. Keywords: credit constraints, human capital, on-the-job training. Becker (1962) was the …rst to argue that lack of access to external …nancing may depress e¢ cient investment in training, either because credit constrained workers will not be willing to accept lower wages, or because credit constrained …rms may not be able to pay workers more than their marginal product during the training period. Non-Technical SummaryHowever, because direct measures of credit constraints are missing in conventional datasets, there is no microevidence that credit constraints a¤ect training or that the magnitude of the e¤ect is economically important. There are three main stumbling blocks in evaluating the impact of credit market imperfections on investment in human capital. The …rst one is that while the literature has studied extensively what constitutes a credit constrained …rm, credit constrained …rms are usually not observable. To deal with this issue, I identify …rms that do not have access to 1 credit markets from replies to direct questions about whether …rms were denied credit or did not apply fearing that they would be denied. Second, credit constrained …rms may also be …rms for which the return to training is lower due to their more general technology, to their inability to lock workers into long-term contracts, or to their low degree of oligopsonic power. The detailed …rm-level dataset used in this paper makes it possible to circumvent this problem by allowing me to obse...

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Section: Introductionmentioning

confidence: 99%

Credit constraints and investment in human capital: Training evidence from transition economies

Popov¹

2014

Journal of Financial Intermediation

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“…The Biotechnology & Medical Care industry has highest R&D ratio of 7.84%, while Electronics, Electrical Machinery and Automobiles have R&D ratios over 2%. The high R&D industries in Taiwan are quite similar to those in the US, as defined by Brown et al (2009). Tourism and Shipping firms have the lowest R&D ratios, at 0 % and 0.01%, respectively.…”

Section: Methodsologymentioning

confidence: 52%

R&D Investment and Market Reactions in Non-crisis and Crisis Periods: Evidence from Taiwan

Chou¹,

Phan²

2016

International Journal of Financial Research

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This study examines market reactions to firms with different level of R&D expenditure. In particular, we investigate whether R&D investment in an uncertain environment, such as during the global financial crisis of 2008, will aggravate the level of information asymmetry and increase the likelihood of undervaluation on R&D stocks. We use a sample of Taiwanese firms and classify the sample into four portfolios: no R&D, low R&D, middle R&D and high R&D firms, and estimate abnormal returns using the Fama and French three factor and Carhart four factor models. We find that the no R&D portfolio has the highest positive and significant abnormal returns in the non-crisis period (2000)(2001)(2002)(2003)(2004)(2005)(2006)(2007), while the high R&D portfolio has the highest abnormal return in crisis period (2008)(2009)(2010)(2011). Our multivariate analysis provides supporting evidence that high R&D firms have a greater extent of information asymmetry than no R&D firms during the crisis period, while no R&D firms bear a high risk of low growth potential in non-crisis period. Similar results are obtained either by equal-weighted or value-weighted portfolio returns. Recent studies propose that investors may misprice high-tech firms. Our results provide international evidence that investors react differently to no R&D and R&D intensive firms, and R&D investment in crisis period will aggravate information asymmetry and the extent to which investors underestimate the value of R&D stocks.

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“…The developed world has experienced a technological change toward a stronger importance of information technology and of knowledge, human, and organizational capital, which has gradually reduced the reliance on physical capital (Brown, Fazzari and Petersen (2009) The empirical evidence suggests that these two trends are related. The process of technological change has been linked to a lower availability of collateral for the corporate sector, which has lowered its debt capacity.…”

Section: Empirical Motivationmentioning

confidence: 88%

“…If the misallocation of resources caused by …nancial constraints is a factor contributing to the increase in productivity dispersion, we should expect the latter to be more pronounced in sectors with higher intensity of intangible capital. 9 In order to investigate the relation between the rise in intangibles and productivity dispersion, we use accounting data of 34,900 U.S. corporations obtained from Compustat, covering the period from 1980 to 2015, and containing 379,318 …rm-year observations. We de…ne intangible capital as the sum of knowledge capital and organizational capital.…”

Section: Empirical Motivationmentioning

confidence: 99%

Capital Misallocation and Secular Stagnation

Caggese

Perez-Orive

2017

FEDS

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The widespread emergence of intangible technologies in recent decades may have signi…-cantly hurt output growth-even when these technologies replaced considerably less productive tangible technologies-because of structurally low interest rates caused by demographic forces.This insight is obtained in a model in which intangible capital cannot attract external …nance, …rms are credit constrained, and there is substantial dispersion in productivity. In a tangiblesintense economy with highly leveraged …rms, low rates enable more borrowing and faster debt repayment, reduce misallocation, and increase aggregate output. An increase in the share of intangible capital in production reduces the borrowing capacity and increases the cash holdings of the corporate sector, which switches from being a net borrower to a net saver. In this intangibles-intense economy, the ability of …rms to purchase intangible capital using retained earnings is impaired by low interest rates, because low rates increase the price of capital and slow down the accumulation of corporate savings.

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Financing Innovation and Growth: Cash Flow, External Equity, and the 1990s R&D Boom

Cited by 1,499 publications

References 111 publications

Credit constraints and investment in human capital: Training evidence from transition economies

Credit constraints and investment in human capital: Training evidence from transition economies

R&D Investment and Market Reactions in Non-crisis and Crisis Periods: Evidence from Taiwan

Capital Misallocation and Secular Stagnation

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