The financing of R&D and innovation

Hall, Bronwyn and Lerner, Josh (2010). The financing of R&D and innovation. UNU-MERIT.

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UNU-MERIT Working Papers

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  • Author Hall, Bronwyn
    Lerner, Josh
    Title The financing of R&D and innovation
    Publication Date 2010
    Publisher UNU-MERIT
    Abstract Evidence on the “funding gap“ for investment innovation is surveyed. The focus is on financial market reasons for underinvestment that exist even when externality-induced underinvestment is absent. We conclude that while small and new innovative firms experience high costs of capital that are only partly mitigated by the presence of venture capital, the evidence for high costs of R&D capital for large firms is mixed. Neverthless, large established firms do appear to prefer internal funds for financing such investments and they manage their cash flow to ensure this. Evidence shows that there are limits to venture capital as a solution to the funding gap, especially in countries where public equity markets for VC exit are not highly developed. We conclude by suggesting areas for further research.
    Keyword Innovation
    R&D
    Financing
    Liquidity constraints
    Venture capital
    Cash flow
    JEL G24
    G32
    O32
    O38
    Copyright Holder UNU-MERIT
    Copyright Year 2010
    ISSN 1871-9872
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    Created: Wed, 11 Dec 2013, 17:24:32 JST