The determinants of R&D financing constraints: Evidence from Belgian Companies

Michele Cincera, Department of Economics, University of Brussels

This paper presents an empirical analysis that investigates whether financial
constraints are present in R&D investment decisions of Belgian companies over the
90’s. The papers begins with a review of the main theoretical aspects of firms’
R&D investments and the di fferences with investments in physical capital. The
main approaches for estimating the relationship between R&D investments and the
possible existence of financial constraints are then discussed. According to Kaplan
and Zingales (1997), one of the main drawbacks of these approaches is that cash
flow e ffects can be correlated with firms’ demand expectations and therefore they
can not be interpreted as a direct measure of liquidity constraints. In order to dis-entangle
between these e ffects, this paper considers a direct information on firms’
cash-constraints available from the Belgian Community Innovation Surveys. The
empirical evidence suggests that liquidity constraints predominate. As additional
results, the role of public R&D subsidies and the permanent nature of R&D activ-ities
on liquidity constraints are also estimated. System-GMM estimates from the
error correction equations and probit estimates which control for sample selection
biases both suggest that firms engaged in R&D activities on an occasional basis
and that receive public funds are more constraint.

Date: 18 November-00 0000