The investment in R&D constitutes a driver of growth for the firms and particularly in the case of them that survive in an intensely competitive environment. The difficulties encountered have to do with finding adequate sources of financing. The easiness of raising sufficient funds is related, among others, to the financial structure of the enterprise, as well as with the phase of growth in which it is found. The study examines the effects of liquidity constraints and firm size on R&D investment. This issue is empirically analysed by using firm-level data for R&D active firms, listed on LSE and AIM in the United Kingdom. According to the findings, there are indications that the size and liquidity constraints of a British firm are determinants of the decisions on financing investments for development and production of innovation. Furthermore, it appears that the option of internal or external financing depends on the size of the company. The findings assist the managerial decisions on financing R&D investments properly, in order to promote economic growth by increasing firm-level innovative activity.
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