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Business cycles and research investment

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Abstract:

This paper examines the impact of uncertainty and the business cycle on US high-tech manufacturing firms' research investment. Although the reliance on internal financing suggests firms will consider uncertainty and the business cycle when determining their research budget, little is known about how the business cycle and uncertainty influence research investment. Using firm-level data on sales, cash flow, and industry-level indicators of the business cycle, this paper finds that the firm's response to the business depends on the firm's industry and the industry's current location in the business cycle. The data also shows that the business cycle also depresses the firm's reaction to changes in sales and cash flow. Uncertainty clearly reduces research efforts, although non-linearly.

Document Type: Research Article

DOI: https://doi.org/10.1080/00036840500427098

Affiliations: Department of Economics and Finance, University of Arkansas at Little Rock, 2801 South University Avenue, Little Rock AR 72204, USA

Publication date: 2006-08-20

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