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Finance and R&D Investments - is there a debt overhang effect on R&D investments?

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Author Info
Martinsson, Gustav () (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)

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Abstract

The motivation of this paper is the rather naive approach to debt as a financing source of R&D investment in the empirical investment literature. I focus on long-term relational debt based on its appealing contractual properties and discover a debt overhang effect for the relationship between additional long-term debt and R&D investment. I augment an error correction accelerator-profit specification to include changes in long-term debt as a transitory determinant of R&D investment as has been done with internal finance previously. Firms with previous period debt levels around 0.60 display a positive relationship between additional long-term debt and R&D investment.

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Publisher Info
Paper provided by Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies in its series Working Paper Series in Economics and Institutions of Innovation with number 174.

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Length: 65 pages
Date of creation: 25 Mar 2009
Date of revision:
Handle: RePEc:hhs:cesisp:0174

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Postal: CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology, SE-100 44 Stockholm, Sweden
Phone: +46 8 790 95 63
Web page: http://www.infra.kth.se/cesis/
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Related research
Keywords: Econometrics; Financial Economics; Financial Markets; R&D; Financing Constraints;

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Find related papers by JEL classification:
C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment
O30 - Economic Development, Technological Change, and Growth - - Technological Change - - - General

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