Financing innovation, crises and financial development: evidence from U.S. firms

Ho, Ty Thi Hai (2013). Financing innovation, crises and financial development: evidence from U.S. firms Master's Thesis, School of Economics, The University of Queensland.

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Author Ho, Ty Thi Hai
Thesis Title Financing innovation, crises and financial development: evidence from U.S. firms
School, Centre or Institute School of Economics
Institution The University of Queensland
Publication date 2013
Thesis type Master's Thesis
Supervisor Dr. Mamiza Haq
Total pages 195
Language eng
Subjects 14 Economics
Formatted abstract

Asymmetric information problem and lack of collateral can make R&D investment more susceptible to financial constraints than other investment, especially for young, small and non-dividend-payout firms. During the global financial crisis (GFC) with the reduction on market demand and the collapse of credit and stock markets, R&D intensive firms find raising both internal and external finance a challenge. On a macroeconomic level, R&D activities are likely to be enhanced by financial development as a mechanism of economic growth. However, existing evidence on whether financing frictions limit R&D activities, particularly in non-high tech firms and the effects of the GFC as well as financial development on R&D investment both for high tech and non-high tech firms remain unexplored. Thus, this study attempts to fill the aforementioned gaps.

In particular, this thesis analyses the impact of financial sources on R&D investment in both high tech and non-high tech firms. In particular, two key research questions are answered including:

RQ1: To what extent do sources of finance including cash flow, stock issues and debt issues affect R&D investment during crises periods?

RQ2: To what extent does financial development affect R&D investments?

The study analyses a panel dataset of 8,508 publicly listed U.S. firms comprising 2,965 high tech firms and 5,543 non-high tech firms with a total of 80,945 firm-year observations over the period of 1990-2011. The study is based on the Euler-equation specification using pooled-OLS, firm fixed effects and two-step system GMM regressions.

The thesis documents three key findings. First, the internal finance affects R&D investment in both high tech and non-high tech firms while external finance are only associated with high tech firms. Moreover, this effect is severe among young and non-payout firms compared to mature and payout firms respectively. Second, impacts of the GFC 2007-2008 and internet bubble crisis 2000-2001 on R&D investment in high-tech firms are greater compared to their counterparts (i.e, non-high-tech firms). This evidence is appreciable among young and non-payout in high tech industries. Finally, financial development enhances innovation in both high tech and non-high tech firms, indicating that high tech firms exhibit ease in accessing financial sources compared to non-high tech firms. The results are robust to different sample splitting criteria, model specification, and other crises periods.

Keyword Financing innovation
Financing crises
Financial development
Additional Notes * ECON7930 ECONOMIC THESIS

Document type: Thesis
Collection: UQ Theses (non-RHD) - UQ staff and students only
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Created: Wed, 02 Oct 2013, 09:46:41 EST by Mr Yun Xiao on behalf of Scholarly Communication and Digitisation Service