Firm Level Investment and R&D in France and the United States: A Comparison
Recent theoretical and empirical literature on firm-level investment has focused on the role of financial factors and liquidity on the investment decision, partly in an attempt to understand why these factors appear to have as much influence as they do on
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1 Introduction Recent theoretical and empirical literature on firm-level investment has focused on the role of financial factors and liquidity on the investment decision , partly in an attempt to understand why these factors appear to have as much influence as they do on investment (see Schiantarelli, 1996, and Hubbard, 1998, for two recent surveys of this literature). An open and somewhat contentious question remains whether these financial factors are proxying for demand shocks or whether their presence in the investment equation indicates that firms are subject to liquidity constraints or an inability to finance all their desired investments. 1 Some researchers have argued that R&D investment might be expected to be even more sensitive to financial factors than physical investment in equipment and structure (or investment for short), because of its relative risk and lack of easily mortgaged assets, although evidence that this is the case is sparse (Hall, 1992, Himmelberg and Petersen, 1994). The goal of this latter literature is to understand features of financial markets that might inhibi t or encourage innovation in established firms.? Recently some researchers have begun to use a comparative approach in order to better understand the investment relation; comparisons are made across countries and/or types of investment. Work of this kind includes Hall (1992), who investigates the role of financing constraints on R&D and investment for U.S. firms; Harhoff (1997), who does the same for German firms; and Bond, Harhoff, and Van Reenen (1998), who extend Harhoff's analysis to U.K. companies .'
* We gratefully acknowledge the helpful comments of our discus sants, Julie Ann Elston and
Stacey Tevlin, and those of the other participants in the Deutsche Bundesbank Conference on "Investing Today for the World of Tomorrow", held in Frankfurt, April 28-29, 2000 . Benoit Mulkay thanks the CNRS for financial support under the program "Les enjeux economiques de I'innovation". 1 Kaplan and Zingales (1997, 2000), Fazzari, Hubbard, and Petersen (2000). 2 A separate literature focuses on the issues surrounding the financing of start-ups and entrepreneurial firms, including the use of venture capital. See , for example, Berger and Udell (1998) . 3 See also Bond, Elston , Mairesse, and Mulkay (1997), who compare the investment behavior of French, Belgian, German and British firms and Hall et al. (1999) who conduct a causal analysis for investment , R&D , sales and cash flow across French, Japanese, and U.S. firms.
D. Bundesbank, Investing Today for the World of Tomorrow © Springer-Verlag Berlin · Heidelberg 2001
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Finn Level Investment and R&D
The approach taken in the present paper is closest to that in Bond, Harhoff, and Van Reenen (1998), but uses data for French and United States R&D-performing and non-R&D-performing firms. We ask how R&D and investment behaviors at the firm level differ from each other and how they differ across these two countries . One question of interest is thus whether firms affected by a decreas
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