The influence of financial constraints on participation in and the impact of public policies for private R&D

Abstract Financial constraints (FC) and access to external funding are widely recognized as barriers to R&D activities and are often cited as strong justifications for public support of R&D. However, the mediating role of these constraints in influencing the impact of policies on R&D spending by firms has received little attention. The main novelty of this article lies in the simultaneous use of a comprehensive set of 17 quantitative indicators which reflect the solvency, indebtedness, liquidity, and credit costs of firms as reflected in their balance sheets. These indicators were combined into seven synthetic measures through factor analysis. We addressed two research hypotheses. First, Spanish firms that face greater FC receive public support more frequently. The results suggest that highly indebted firms and those with greater solvency are less likely to participate in public support programs. Conversely, firms with higher costs associated with loans are more likely to receive support. Second, public support has a greater impact on the R&D expenditures of financially constrained firms (level of financial additionality FA) than on the R&D spending of less constrained firms. To assess this hypothesis, we use a propensity score matching model. The findings suggest higher FA for both the most solvent and the most indebted firms. However, if the costs of these debts are high, an effect of below-average additionality is observed.