Financing Innovation and Growth: Cash Flow, External Equity, and the 1990s R&D Boom

Financing Innovation and Growth: Cash Flow, External Equity, and the 1990s R&D Boom

  • JAMES R. BROWN
  • STEVEN M. FAZZARI
  • BRUCE C. PETERSEN

Article first published online: 23rd January 2009 DOI: 10.1111/j.1540-6261.2008.01431.x

Abstract


The financing of R&D provides a potentially important channel to link finance and economic growth, but there is no direct evidence that financial effects are large enough to impact aggregate R&D. U.S. firms finance R&D from volatile sources: cash flow and stock issues. We estimate dynamic R&D models for high‐tech firms and find significant effects of cash flow and external equity for young, but not mature, firms. The financial coefficients for young firms are large enough that finance supply shifts can explain most of the dramatic 1990s R&D boom, which implies a significant connection between finance, innovation, and growth.

Sign in to access the full article.

Related articles


Public Information, IPO Price Formation, and Long‐Run Returns: Japanese Evidence

  • KENJI KUTSUNA
  • JANET KIHOLM SMITH
  • RICHARD L. SMITH

Article first published online: 23rd January 2009 / DOI: 10.1111/j.1540-6261.2008.01440.x

Read Article

Should Investors Bet on the Jockey or the Horse? Evidence from the Evolution of Firms from Early Business Plans to Public Companies

  • STEVEN N. KAPLAN
  • BERK A. SENSOY
  • PER STRÖMBERG

Article first published online: 23rd January 2009 / DOI: 10.1111/j.1540-6261.2008.01429.x

Read Article

MISCELLANEA

Article first published online: 23rd January 2009 / DOI: 10.1111/j.1540-6261.2008.01441.x

Read Article

Share Repurchases and Pay‐Performance Sensitivity of Employee Compensation Contracts

  • ILONA BABENKO

Article first published online: 23rd January 2009 / DOI: 10.1111/j.1540-6261.2008.01430.x

Read Article

Entrepreneurial Shareholder Activism: Hedge Funds and Other Private Investors

  • APRIL KLEIN
  • EMANUEL ZUR

Article first published online: 23rd January 2009 / DOI: 10.1111/j.1540-6261.2008.01432.x

Read Article

CEO Compensation and Board Structure

  • VIDHI CHHAOCHHARIA
  • YANIV GRINSTEIN

Article first published online: 23rd January 2009 / DOI: 10.1111/j.1540-6261.2008.01433.x

Read Article

Are you an Author?


Please read our submission requirements and find out how to submit your paper to the Journal of Finance

Submit a paper