Financial Constraints and the Structure of the Firm’s Investment: An Application to the Scientific R&D Industry from the Largest EU Countries

Abstract

This work assesses the influence of financial constraints on firms’ investment structure. Previous works state that financially constrained firms chose to invest more in tangible assets, in the detriment of intangible assets. However, none of these researches investigated the structure of investment of firms from scientific R&D industry. Therefore, we add to the exiting literature, and we test the impact of leverage, liquidity, and profitability on the R&D firms’ investment structure. We use data at firm level from 2007 to 2014, for 269 companies, located in France (163), Germany (67), and the UK (39), drawing a comparison between these countries. Our GMM analysis shows no significant impact of leverage and liquidity on the structure of investment. For Germany and UK, an increased profitability allows firms to invest more in long-term, intangible assets. These findings remain the same under different difference- and system-GMM specifications.