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R&D investment and financial contracting in spanish manufacturig firms

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  • Martínez Ros, Ester
  • Tribo Gine, José Antonio

Abstract

This paper presents a model in which a firm with a degree of R and D specialization raises external funds to develop a two-period project that involves some non-verifiable returns (R and D-type of project). Taking into account a possible opportunistic behavior by the manager, we find out that the optimal firm's debt equity ratio is negatively related to the firm's degree of R and D specialization, its internal funds, and the output generated by the R and D project. Moreover, the expected R and D output of the firm is related negatively to the firm's leverage and positively to the firm's degree of R and D specialization as well as the amount of internal funds. The novelty of this work is to derive these results from strategic default consideration of the managers of firms specialized in R and D investments, as opposed to the standard collateral arguments concerning debt financing. This has a consequence of a lower growth of the firm's debt-equity ratio once we compare firms specialized on R and D investments with others non specialized in these activities. We confirm our main theoretical findings making use of a Spanish data set of manufacturing firms during the period 1990-94.

Suggested Citation

  • Martínez Ros, Ester & Tribo Gine, José Antonio, 2002. "R&D investment and financial contracting in spanish manufacturig firms," DEE - Working Papers. Business Economics. WB wb020904, Universidad Carlos III de Madrid. Departamento de Economía de la Empresa.
    • Handle: RePEc:cte:wbrepe:wb020904
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