Financing behavior of R&D investments in the emerging markets : the role of alliance and financial system

Alam, MA; Uddin, MM; Yazdifar, H

Abstract

This paper examines the financing behaviour of R&D investments in emerging markets. Drawing on institutional theory and using panel data of generalized methods of moment (GMM) estimation for a sample of 302 firms from 20 countries during the period 2003-2015, we find that emerging market firms tend to use internal funds for financing R&D investments. Interesting results emerged when the sample was divided as alliance and non-alliance firms, and bank-based and market-based financial systems. The results show that R&D financing behaves differently for alliance and non-alliance firms. Alliance firms use both internal and external funds for R&D investments, while non-alliance firms do not use external funds. We also document that a country’s financial system influences the choice of available sources of finance. Firms from countries that follow a bank-based financial system tend to rely on external funds while firms from countries that follow a market-based financial system depend more on internal funds for financing R&D investments. This study is important as it provides new evidence on financing R&D investments in emerging countries taking into account the institutional arguments of financing choices, and so should guide stakeholders about appropriate sources of R&D financing.

• Journal Article Type: Article
• Acceptance Date: Nov 2, 2017
• Online Publication Date: Dec 8, 2017
• Publication Date: Jan 1, 2019
• Deposit Date: Nov 14, 2017
• Publicly Available Date: Dec 8, 2019
• Journal: R&D Management
• Print ISSN: 0033-6807
• Electronic ISSN: 1467-9310
• Publisher: Wiley
• Volume: 49
• Issue: 1
• Pages: 21-32
• DOI: https://doi.org/10.1111/radm.12303
• Publisher URL: http://dx.doi.org/10.1111/radm.12303
• Related Public URLs: http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1467-9310