CREDIT CONSTRAINTS AND THE CYCLICALITY OF R&D INVESTMENT: EVIDENCE FROM FRANCE

We use a French firm-level data set containing 13,000 firms over the period 19942004 to analyze the relationship between credit constraints and firms R&D behavior over the business cycle. Our main results can be summarized as follows: (i) R&D investment is countercyclical without credit constraints, but it becomes procyclical as firms face tighter credit constraints; (ii) this result is only observed for firms in sectors that depend more heavily upon external finance, or that are characterized by a low degree of asset tangibility; (iii) in more credit-constrained firms, R&D investment plummets during recessions but does not increase proportionally during upturns.