Financing Innovation: Evidence from R&D Grants

Summary

American Economic Review article by Sabrina T. Howell in vol. 107, no. 4, on R&D subsidies. The abstract states that governments regularly subsidize new ventures to spur innovation and that the paper conducts the first large-sample, quasi-experimental evaluation of R&D subsidies, using data on ranked applicants to the US Department of Energy's SBIR grant program. It says an early-stage award approximately doubles the probability that a firm receives subsequent venture capital and has large, positive impacts on patenting and revenue, stronger for more financially constrained firms. It states that certification likely does not explain the grant effect; instead the grants are useful because they fund technology prototyping.

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American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

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Financing Innovation: Evidence from R&D Grants

- Sabrina T. Howell

American Economic Review

vol. 107, no. 4, April 2017

(pp. 1136–64)

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Abstract

Governments regularly subsidize new ventures to spur innovation. This paper conducts the first large-sample, quasi-experimental evaluation of R&D subsidies. I use data on ranked applicants to the US Department of Energy's SBIR grant program. An early-stage award approximately doubles the probability that a firm receives subsequent venture capital and has large, positive impacts on patenting and revenue. These effects are stronger for more financially constrained firms. Certification, where the award contains information about firm quality, likely does not explain the grant effect. Instead, the grants are useful because they fund technology prototyping.

Citation

Howell, Sabrina T. 2017. "Financing Innovation: Evidence from R&D Grants." American Economic Review 107 (4): 1136–64 . DOI: 10.1257/aer.20150808

Additional Materials

JEL Classification

- D22 Firm Behavior: Empirical Analysis
- G24 Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies
- G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- L53 Enterprise Policy
- O31 Innovation and Invention: Processes and Incentives
- O34 Intellectual Property and Intellectual Capital
- O38 Technological Change: Government Policy

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