Vol.:(0123456789) The Journal of Technology Transfer https://doi.org/10.1007/s10961-019-09765-6 1 3 Innovative activities and investment decision: evidence from European firms Oliviero A. Carboni 1  · Giuseppe Medda 2 © Springer Science+Business Media, LLC, part of Springer Nature 2019 Abstract This paper investigates the role of innovative activity and other micro determinants, on firms’ investment behaviour. The empirical analysis is based on a large representative and cross-country comparative sample of manufacturing firms across seven European countries during the global financial crisis 2007–2009. It is argued that innovative activities, meas- ured either by an input variable (R&D) or by an output variable (innovative products sales), may boost additional investment in equipment and machinery. Given the significant share of firms which did not carry out any investment, a tobit procedure is adopted. Successively, in order to account for the potential simultaneity between investment decision and innova- tion activity variables, a seemingly unrelated regression equation methodology is applied. The results reveal that both R&D and innovative sales positively affect investment deci- sions, with the former having a stronger impact on investments, compared to the latter. The analysis also suggests that, after checking for a firm’s characteristics, firms in Germany and Spain are more likely to invest than those in France, Italy, and the UK. Keywords R&D · Tangible investment · Firm behavior · SUR model JEL Classification O32 · C31 · C34 · D22 1 Introduction According to Eurostat (2015) between 2004 and 2014 gross capital formation decreased by 1.8% in Europe. This is mainly the result of the sharp economic fall between the outbreak of the global financial crisis in 2007–2009 and 2012–2013. In 2007–2009, investment rate of non-financial corporations declined by over 12% in Spain, and by 3.1 and 2.6% points, * Giuseppe Medda gmedda@yahoo.it Oliviero A. Carboni ocarboni@uniss.it 1 Department of Economics (DiSEA), University of Sassari and CRENoS, Via Francesco Muroni 25, 07100 Sassari, Italy 2 Department of Economics (DiSEA), University of Sassari, Via Francesco Muroni 25, 07100 Sassari, Italy