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Article
Financing Innovation and Growth: Cash Flow, External Equity, and the 1990s R&D Boom
The Journal of Finance (2009)
  • James R. Brown, Montana State University
  • Steven M. Fazzari, Washington University
  • Bruce C. Petersen, Washington University
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.
Publication Date
January, 2009
DOI
10.1111/j.1540-6261.2008.01431.x
Publisher Statement
2009. John Wiley & Sons, Inc.
Citation Information
James R. Brown, Steven M. Fazzari and Bruce C. Petersen. "Financing Innovation and Growth: Cash Flow, External Equity, and the 1990s R&D Boom" The Journal of Finance Vol. 64 Iss. 1 (2009) p. 971 - 984
Available at: http://works.bepress.com/james-brown/5/