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

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  • Martinsson, Gustav

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    (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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    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
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    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
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    Keywords: Econometrics; Financial Economics; Financial Markets; R&D; Financing Constraints;

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