Knowledge investments in recessions: The effects of demand and credit

We examine how recessions change firms’ knowledge investments. Unlike existing work we split the effects of recessions into demand reductions, and problems with access to credit. Our main findings are that investments in R&D and innovation are more sensitive to problems with access to credit than they are to reductions in demand. For investments in human- and organizational capital, the relationship is the opposite, i.e. they are more sensitive to demand reductions than access to credit. Furthermore, we hypothesize and find support for important nonlinearities in the effects of demand changes on investments in human and -organizational capital. For mild demand reductions these investments increase, but for strong demand reductions they decrease, and notably, they also decrease for firms that experience demand increases.