Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Faculty & Research
  • Faculty
  • Research
  • Featured Topics
  • Academic Units
  • …→
  • Harvard Business School→
  • Faculty & Research→
Publications
Publications
  • 2010
  • Chapter
  • Handbook of the Economics of Innovation

The Financing of R&D and Innovation

By: Bronwyn H. Hall and Josh Lerner
  • Format:Print
  • | Pages:31
ShareBar

Abstract

Evidence on the “funding gap” for investment innovation is surveyed. The focus is on financial market reasons for underinvestment that exist even when externality-induced underinvestment is absent. We conclude that while small and new innovative firms experience high costs of capital that are only partly mitigated by the presence of venture capital, the evidence for high costs of R&D capital for large firms is mixed. Nevertheless, large established firms do appear to prefer internal funds for financing such investments and they manage their cash flow to ensure this. Evidence shows that there are limits to venture capital as a solution to the funding gap, especially in countries where public equity markets for VC exit are not highly developed. We conclude by suggesting areas for further research.

Keywords

Research and Development; Innovation and Invention; Venture Capital; Corporate Finance

Citation

Hall, Bronwyn H., and Josh Lerner. "The Financing of R&D and Innovation." Chap. 14 in Handbook of the Economics of Innovation: Volume 1, by Bronwyn H. Hall and Nathan Rosenberg, 609–639. Amsterdam: Elsevier, 2010.
  • Find it at Harvard

About The Author

Josh Lerner

Entrepreneurial Management
→More Publications

More from the Authors

    • May 2025
    • Quarterly Journal of Economics

    The Diffusion of New Technologies

    By: Aakash Kalyani, Marcela Carvalho, Nicholas Bloom, Tarek Hassan, Josh Lerner and Ahmed Tahoun
    • 2025
    • Faculty Research

    Private Equity and Workers: Modeling and Measuring Monopsony, Implicit Contracts, and Efficient Reallocation

    By: Kyle Herkenhoff, Josh Lerner, Gordon M. Phillips, Francisca Rebelo and Benjamin Sampson
    • 2025
    • Faculty Research

    Impact Investing and Worker Outcomes

    By: Josh Lerner, Markus Lithell and Gordon M. Phillips
More from the Authors
  • The Diffusion of New Technologies By: Aakash Kalyani, Marcela Carvalho, Nicholas Bloom, Tarek Hassan, Josh Lerner and Ahmed Tahoun
  • Private Equity and Workers: Modeling and Measuring Monopsony, Implicit Contracts, and Efficient Reallocation By: Kyle Herkenhoff, Josh Lerner, Gordon M. Phillips, Francisca Rebelo and Benjamin Sampson
  • Impact Investing and Worker Outcomes By: Josh Lerner, Markus Lithell and Gordon M. Phillips
ǁ
Campus Map
Harvard Business School
Soldiers Field
Boston, MA 02163
→Map & Directions
→More Contact Information
  • Make a Gift
  • Site Map
  • Jobs
  • Harvard University
  • Trademarks
  • Policies
  • Accessibility
  • Digital Accessibility
Copyright © President & Fellows of Harvard College.