Firm R&D and Financial Analysis : How Do They Interact?

Entrepreneurs undertake more R&D when financiers are better informed about their projects because they expect to receive more funding should those projects prove successful.Financiers learn more about projects when entrepreneurs perform more R&D because then the opportunity cost of misinvesting is higher. Results from two quasi-natural experiments are consistent with this interaction between R&D and learning.Investors' learning accounts for a third of the total effect of a policy that stimulates R&D; and a calibration suggests that the R&D-learning interaction's contribution to income growth represents a third of the total contributions of R&D and learning