R&D, Investment, and Financial Constraints: Empirical Evidence

Sammanfattning: Innovation is the key factor of economic growth. Investment in innovation is largely emphasized throughout the world. Sweden has been quite successful in developing high technology and has almost the highest R&D expenditure in terms of its GDP during the recent decade. Due to business practice, issues such as information asymmetry and agency problems hinder firms from raising external funds freely. However, certain financial systems such as the bank-based system in Germany and Sweden were believed to help firms with accessing to bank loans. In the recent years, due to globalization, Sweden is believed to switch from its bank-based system to a more market-oriented system like in the UK and US. In this paper, I study a panel of Swedish manufacturing firms during 1998 and 2007. I mainly focus on three questions: whether the Swedish firms are restricted to internal earnings for R&D investment; what are the factors that possibly affect the R&D investment; and whether they differently affect investment in R&D and investment in plant, machinery, and equipment. The result shows that Sweden still remains a bank-based financial system. Therefore, most of its firms are not restricted to internal earnings during this period. In addition, the stock market also provides large investment opportunities for the firms to develop their R&D.