Hitting the gas or the brake? Recessions and firms' knowledge investments
Knudsen & Lien (2019) Hitting the gas or the brake? Recessions and firms' knowledge investments, Managerial and Decision Economics, 40(8): 1000-1015
How do firms change their investments in research, innovation and human capital in response to the financial crisis of 2008 and the recession that followed?
We examine how firms alter their investment behavior in response to changes in demand and access to credit during recessions. We compare and contrast investment changes in physical assets, R&D, and human capital. We find that firms tend to shield R&D investments from transitory fluctuations in demand and that R&D investments are more sensitive to credit changes than usually assumed. For human capital, we find a cubic relationship between investments and demand changes. Important variation and trade-offs remain hidden if investment is treated as a single category or if the distinction between demand and credit impulses is not made.