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Small Business Economics

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01.11.2012

Picking the winner? Empirical evidence on the targeting of R&D subsidies to start-ups

verfasst von: Uwe Cantner, Sarah Kösters

Erschienen in: Small Business Economics | Ausgabe 4/2012

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Abstract

This paper investigates the allocation of R&D subsidies given to start-ups. Considering the coexistence of various R&D project schemes, we take an aggregate view and analyze the determinants of the receipt of (any) R&D subsidies within the first three business years of the start-ups. We argue that policymakers and funding authorities follow a strategy of “picking the winner”. Analyzing start-ups in the East German state of Thuringia, we conduct logistic regressions and find ambiguous support. R&D subsidies are given to start-ups with innovative business ideas, especially academic spin-offs. Although the ambitions and patent stock of the founder(s) do not decide the receipt of R&D subsidies, team start-ups and the initial capital of a start-up tend to affect this decision positively. Hence, we cannot exclude a “picking the winner” strategy in targeting R&D subsidies to start-ups. More generally, however, the problems of policy targeting question the massive subsidization of private R&D.

Vorheriger Artikel Bank market structure and entrepreneurship

Nächster Artikel Do firms’ growth rates depend on firm size?

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An overview of currently available programs is given in the online database http://www.foerderdatenbank.de/, administered by the German government.

Deutscher Bundestag (2005) and Belitz et al. (2001) provide insights into the volatile subsidy environment that East German firms face with regard to public R&D funds.

However, there are still distortions arising from raising taxpayer’s money to finance the subsidy as well as deadweight losses arising from screening applicants.

However, even for established firms this might be misleading. Past performance might rather lead to less innovation because the firm does not want to cannibalize its own product or, rather, routinizes its production. (We are grateful to one anonymous referee who pointed this out.)

Autio (2005) defines high-expectation entrepreneurs as those nascent entrepreneurs whose objective is to recruit at least 20 employees within 5 years’ time.

Since the commercial register only provides limited ex-ante information about the start-ups we cannot test for other characteristics whether the final sample is representative of innovative industries in Thuringia.

We defined the first business year as the time when accounting started either because of obligations from the commercial register or because of first revenues. This does not necessarily correspond to the date of registration in the Handelsregister.

The life history calendar is a method developed by psychologists and sociologists and is based on the principles of the autobiographic memory. This means that—in a first step—we asked interviewees about the timing of well-known events (e.g. marriage, birth of children). In a second step, these events served as anchors for less well represented events (e.g. first interest in entrepreneurship).

We had to discard one outlier which had a patent stock of 148 patents, almost triple the amount of the start-up with the second highest patent stock.

Unfortunately, however, the one-digit NACE code is relatively approximate.

This focus of policymakers and economic research on the manufacturing sector has been also pointed out by Czarnitzki and Fier (2001).

This relationship is also supported by the highly significant coefficients of the respective correlations of the variables Academic Spin-off and Team (r: 0.258, p < 0.01) and Academic Spin-off and Patent Stock (r: 0.231, p < 0.01) respectively (Table 3).

When dropping the variable Product in model 6, the variable Initial Capital becomes a significant predictor of receiving R&D subsidies and in this way does not reject our “picking the winner” hypothesis.

However, an insignificant likelihood-ratio-test does not indicate that model 8 is appropriate.

Examining the same data set with propensity score matching in a companion paper (Cantner and Kösters 2009), we find a high impact of R&D subsidies on start-up’s employment growth and patent output within the first three business years.

Additional R&D funds of 6 bn Euro between 2006 and 2009 have been announced by the promotional initiative “High-Tech Strategy for Germany” (BMBF 2006). Fostering R&D and technology-oriented start-ups is a stated aim of this initiative. The high public subsidization can be also seen in our sample: 43.6% of all R&D-performing start-ups receive public R&D funds.

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Titel: Picking the winner? Empirical evidence on the targeting of R&D subsidies to start-ups
verfasst von: Uwe Cantner
Sarah Kösters
Publikationsdatum: 01.11.2012
Verlag: Springer US
Erschienen in: Small Business Economics / Ausgabe 4/2012
Print ISSN: 0921-898X
Elektronische ISSN: 1573-0913
DOI: https://doi.org/10.1007/s11187-011-9340-9

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