Industrial research versus development investment: The implications of financial constraints

Dirk Czarnitzki, Hanna Hottenrott, Susanne Thorwarth

Research output: Contribution to journalArticlepeer-review

90 Scopus citations


Previous literature provided evidence on financing constraints for investment in research and development (R&D) activities due to capital market imperfections and special features of R&D investments. Moreover, it has been shown that a shift in capital structure towards more debt results in a reduction of R&D investments. This article complements this literature by compartmentalising R&D activities into its components, 'R' and 'D'. In particular, we distinguish research from development as these activities not only differ in their nature but also, to a large extent, take place sequentially. Our results show that 'R' investment is more sensitive to a firms' operating liquidity than 'D' indicating that firms have to rely even more on internal funds for financing their research compared with development activities. Moreover, we find that (basic) research subsidy recipients' investment is less sensitive to internal liquidity.

Original languageEnglish
Pages (from-to)527-544
Number of pages18
JournalCambridge Journal of Economics
Issue number3
StatePublished - 1 May 2011
Externally publishedYes


  • Innovation policy
  • Liquidity constraints
  • Research and development


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