Research On The Impact Of Financing Constraints On R & D Investment Of Small And Medium - Sized Enterprises In China

Research and development (R&D) is one of the key factors to promote thegrowth of modern economy. Successful R&D investment cultivates the corecompetitiveness of enterprises for sustainable competitive advantage. Thereason why small and medium-sized firms are living hardly in china is that theR&D investment intensity of them is much lower than normal level. Most of thestudies focused on the non-finance factors of R&D investment. But maybe it isjust because of the difficulty of R&D financing that leads to the low level ofR&D investment. Recently, the existing theoretical discussions and empiricalresearches have verified the existence of R&D financing constraints in manywestern countries. But few studies have focused on this issue in China.An empirical research was conducted in this paper to study the financingconstraints of Chinese small and medium-sized firms’ R&D investment. Thebalanced panel datasets included observations for80Chinese companies listedon small and medium-sized enterprise board during the period from2007to2012. Regression results show a strong evidence of financing constraints forR&D investment, especially in the non-state-owned companies and small firms.Furthermore, analysis of the R&D investment financing channel showed us thatthe internal funds in China’s small and medium-sized firms have a significantpositive effect on R&D investments. Debt financing has no significantrelationship with R&D investments, indicating that R&D investment is difficultto obtain funds support for small and medium-sized firms from debt financing.This paper found that the small and medium-sized firms’ purposes of equityfinancing were rarely for R&D investment. Only few of the small and mediumenterprises have the ability to meet the conditions of equity financing. Empiricalresults show that R&D investment of small and medium-sized firms in China ismore difficult to get funds from external financing, internal funds are theprimarily or even the only source for R&D investment. Limited internal funds insmall and medium-sized firms means greater R&D financing constraints.