FINANCIAL SOURCES OF R&D INVESTMENT

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Abstract

This paper explores how firms finance their R&D projects. There are several instruments that can be used, however, due to information asymmetries and the combination of tangible and intangible returns that R&D projects generate, debt-financing is the worst alternative. The novelty of this paper is that it combines aspects of the resource-based view with those of the agency theory. This, in terms of a firm’s decision making, is to consider that a firm’s R&D investment is, on the one hand, partly determined by its financing resources and, on the other hand, a major determinant of its financial structure. The theoretical hypotheses are supported in the empirical study that makes use of a data sample of Spanish manufacturing firms for the period 1991-99. The main implication for managers that can be extracted from our study is that the most powerful financing incentive mechanism to stimulate R&D effort is to follow a deep pocket policy of internal funds accumulation.

Keywords: R&D Investment, Financing Instruments, Resource-Based View, Agency Theory

How to cite this paper: Martínez-Ros, E., & Tribó, J. A. (2006). Financial sources of R&D investment. Corporate Ownership & Control, 3(2-1), 191-203. https://doi.org/10.22495/cocv3i2c1p4