The Impact of Uncertainty on R&D Investments of Russian Companies

This study examines the impact of several types of uncertainty: economic policy uncertainty, market uncertainty, and firm-specific uncertainty on R&D investments of Russian public companies. By applying generalized method of moments on panel data and estimating dynamic models, it was found that there is a nonlinear relationship between R&D investment and uncertainty. In addition, the behavior of R&D investments under uncertainty in companies of different sizes and cash holding, as well as in companies operating in industries with different levels of competition, is examined. It is concluded that in order to avoid a reduction in R&D investment, there should not be either absolute predictability or too much uncertainty in economic policy. On the contrary, a strong increase in market uncertainty causes an increase in R&D investment in accordance with the theory of strategic growth options. It was revealed that financial constraints and high concentration in industries impede the R&D investment of Russian companies. Measures for stimulating R&D investment in periods of high uncertainty have been proposed.