Traditional and R&D Investments: are They really Different?

The aim of this chapter is to identify the different role of financial funds in traditional and R&D investments in Italian manufacturing firms using information from Capitalia’s latest Survey of Italian Firms. R&D, defined as a creative activity implemented to improve know-how and its utilization in new applications, is quite distinct because of its high rate of information opacity. Coherently with the asymmetric information theory, R&D thus implies that firms will have greater difficulty in finding external financial funding. The higher risk related to R&D projects could entail some form of financial constraint. However, signalling mechanisms such as self-financing could correct such a market imperfection. The purpose of our study is twofold. First, we investigate which indicators (firms’ structural characteristics, information asymmetries and credit market structure) can define the pattern of the R&D financing scheme. Second, we investigate whether R&D investments face greater difficulty in attracting external financial resources compared to traditional investments.