Abstract: This paper re-examines the relationship between cash flow and R&D investment in U.S. manufacturing firms. Using panel threshold techniques, we estimate liquidity thresholds directly from the data and identify liquidity-constrained firm-years, rather than postulating an ad hoc categorization by firm. We find that the R&D investment of low- and moderately-indebted firms is highly sensitive to cash flow, while the R&D of high-debt firms is unresponsive to cash flow. This finding strongly suggests that external financial constraints significantly affect the R&D investment decision. Keywords: R&D Investment, Cash Flow, Thresholds JEL Classification Number: E22 O32