This paper investigates the pharmaceutical industry of Korea, and examinesthe effects of business cycle and cash flow on firm R&D and patenting behavior.We employ 15 years patent and firm financial data of pharmaceutical companiesand examine whether the business cycle occurred in Korea during the sampleperiod and cash flow of firm have significant effects on firm R&D and patentingbehavior. The empirical results find that the economic recession significantlyincreases the number of patent applications, but the high debt ratio of firm isassociated with the reduction of firm patent applications. In particular, theshort-term (reliable) debt ratio of a firm shows a strong negative correlationwith firm patenting activities, and these response is more pronounced to thelarge sized companies. The empirical results suggests that the Koreanpharmaceutical companies, especially for large firms when they don’t have creditconstraint, do counter_cyclical R&D or patenting activities supporting theopportunistic costs effect hypothesis. This implies that the business cycle mayamplify the gap of R&D activities between the large sized and small sized firms.