The Changing Needs Of The Corporate R & D Expenditures: Cash Flow, And The Opportunity Cost

The cyclicality of research and development (R&D) has attracted more and more attention of the interest of economists and policy makers. The focus of the literature is about the change of R&D expenditure with the economic cycle. Under the current economic crises, the research of the cyclicality of R&D is urgent and necessary.Our empirical research is based on the data of China, we described the basic information of China R&D input, and compare with other countries' information, summarize the change of our country in innovaton. Our research shows that China's R&D funding overally increased rapidly, but the intensity is low; the structure of China's R&D funding has changed from the original government-led to enterprise-led. Business has become the main body of R&D activities. The proportion of basic research in our R&D expenses is too small.According to the research of Matthew Rafferty and Mark Funk (2004), we also testify the effect of the change of demand on firm-finance R&D expenditure, and find the existence of cash flow and opportunity cost effects. The result shows that R&D investment of manufacturing enterprises in China is subject to cash flow. In a recession or a period of slower growth, companies can not use the lower-cost opportunity to expand R&D investment. Companies with higher R&D intensity have weaker cash flow effect.