Financing Innovation: Evidence from R&D Grants
American Economic Review · 2017 · Volume 107 · Issue 4
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.
Keywords
Firm Behavior: Empirical Analysis, Investment Banking, Venture Capital, Brokerage, Ratings and Ratings Agencies, Financing Policy, Financial Risk and Risk Management, Capital and Ownership Structure, Value of Firms, Goodwill, Enterprise Policy, Innovation and Invention: Processes and Incentives, Intellectual Property and Intellectual Capital, Technological Change: Government Policy
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