Allocation of R&D grants in the business sector

The aim of this paper is to provide new empirical evidence on the most crucial determinants of success for firms applying for public R&D grants. Previous studies have been limited to firm level data and mainly tested how firm characteristics affect the allocation of R&D grants. Thereby, they cannot differentiate between firms that have applied for grants but been rejected and firms that did not apply at all. Our contribution is that we use a detailed database of accepted and rejected R&D applications and also introduce several measures of quality indicators of R&D project applications. The estimates show that R&D projects that are assessed with good or very good ratings are significantly more likely to receive approval; particularly for innovative content and novelty as well as to expected additional impacts on R&D activities. In contrast to previous studies, most firm-level characteristics (R&D intensity, labor productivity, cash flow, industry affiliation) are not relevant, indicating that the R&D funding agency does not discriminate among different types of firms. Consequently, applicant firms should focus on radical, new and innovative ideas in their applications rather than on minor improvements.