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The effect of subsidies on R&D in the financial crisis—the role of financial constraints of firms and banks

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  • Marek Giebel
  • Kornelius Kraft
Abstract
We analyze the effect of subsidies on firm R&D, conditional on firms’ access to external financing during the financial crisis when access to external financing was particularly difficult. Specifically, we determine whether subsidies can mitigate or completely offset the effect of external financing constraints of firms or banks. Financial constraints are considered through (i) firms’ credit ratings, and (ii) the capital reserves of their banks. Subsidies were found to help maintain R&D investments during the crisis, especially when financial constraints were present. After the crisis, the subsidized firms reached the level of R&D spending they had prior to the crisis.

Suggested Citation

  • Marek Giebel & Kornelius Kraft, 2024. "The effect of subsidies on R&D in the financial crisis—the role of financial constraints of firms and banks," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 33(5), pages 1180-1198.
    • Handle: RePEc:oup:indcch:v:33:y:2024:i:5:p:1180-1198.
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    File URL: http://hdl.handle.net/10.1093/icc/dtad071
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