Does cash flow cause investment and R&D: an exploration using panel data for French, Japanes and United States scientific firms

The role of financial institutions and corporate governance in the conduct and performance of industrial firrm, especially in the area of technological innovation and international competition has been hotly debated in the recent past. The results presented here are a contribution to the empirical evidence on the behavior of individual firms that exist in somewhat different institutional environments. Using a Panel Data version of the Vertor Auto Regressive (VAR) methodology, we test for causal relationship among sales and cash flow on the one hand and investment and R and D on the other, using three large panels of firms in the scientific (high technology) sectors in the United States, Rance, and Japan. Our findings are that both invest- ment and R and D are more highly sensitive to cash flow and sales in the United States than in Rance and Japan. Correspondingly, both investment and R and D predict both cash flow and sales positively in the United States, while the impact is somewhat more mixed in the other countries.