International evidence on financing of R&D

This chapter examines the financing patterns of R&D expenditures using data from 38 countries for the period 1980-2006. The major hypothesis is that higher equity financing and higher past stock market valuation are associated with higher R&D expenditures. The evidence supports this hypothesis for firms, especially in market-based countries. The sensitivities of equity financing and internal funds are different between financially constrained and unconstrained firms. The results are robust when the effect of patent rights protection, which has also a nonlinear effect on R&D, is controlled.