The impact of R&D grants on firms' access to external equity financing: Euidence from the Norwegian industry.

Abstract

We examine the impact of government support on a firm’s access to external equity financing. Using data on grant applications to SkatteFUNN between 2012 and 2022, we find grants to have a positive impact on the growth of external equity for early-stage firms with respect to a carefully selected control group. Additionally, we find that government R&D support facilitates proof-of-concept work and has a significant impact on the certification effect for early-stage firms. This indicates that such grants serve as a quality endorsement for external investors, reducing information asymmetry. Based on our findings, policymakers should prioritize allocating government R&D subsidies towards early-stage firms to maximize their effectiveness in fostering innovation and to support the growth of young firms.