Financial constraints and R&D investment: International evidence

This study examines the impact of financial constraints on research and development (R&D) investment by analyzing data from 19,988 non-financial global firms from 2009 to 2023, drawn from the Global Compustat database. The analysis utilizes multiple regression techniques, including Pooled OLS, fixed-effects (FEM), and random-effects (REM) models, to assess the robustness of the findings. The results indicate that financial constraints, as measured by the Whited-Wu Index (WW), have a significant negative effect on both R&D intensity (RDEI) and the natural logarithm of R&D expenditure (LNRDE). Specifically, higher financial constraints are associated with a reduction in R&D investments, suggesting that firms experiencing financial difficulties tend to cut back on R&D spending. Additionally, while firm size negatively affects RDEI, indicating that larger firms invest less in R&D relative to their size, it positively influences LNRDE, suggesting that these firms, despite lower R&D intensity relative to their size, have higher absolute R&D expenditures. The analysis also reveals that cash flow does not significantly impact RDEI but negatively affects LNRDE. These results underscore the critical role of financial constraints in shaping firms' R&D investment strategies and highlight the complex relationship between firm size, financial constraints, and R&D expenditures.