DP12433 Firm R&D and Financial Analysis: How Do They Interact?
|Author(s):||Jim Goldman, Joël Peress|
|Publication Date:||November 2017|
|Keyword(s):||capital allocation, Financial Development, growth, Innovation, learning, technological progress|
|JEL(s):||G20, O31, O4|
|Programme Areas:||Financial Economics|
|Link to this Page:||www.cepr.org/active/publications/discussion_papers/dp.php?dpno=12433|
Entrepreneurs undertake more R&D when financiers are better informed about their projects because they expect to receive more funding for successful projects. Conversely, financiers learn more about projects when entrepreneurs perform more R&D because then the opportunity cost of mis-investing is higher. Thus R&D and financial analysis are mutually reinforcing. Evidence based on two quasi-natural experiments supports this interaction. Quantitatively, investors' learning accounts for over a quarter of the total effect of a policy designed to stimulate R&D. A calibration suggests that the interaction's contribution to income growth represents a third of the total contributions of learning and R&D.