R&D Intensity and Financing Decisions: Evidence from European Firms
AbstractThis paper examines whether research and development (R&D) intensity affects the firm’s financing decisions. We use a sample of European firms in the period 2002-2011. We argue that R&D asset has three fundamentals characteristics that make it different from ordinary investment and constrain financing choices of the firm. First, The R&D is a specific non-redeployable asset with higher premium risk. Second, it generates stronger growth opportunities and, third, represents a major contributor to asymmetric information. Based on the implications of the transaction cost theory, the agency cost and pecking order theory, we argue that these fundamentals characteristics affect the financial policy. Our results show that R&D-intensive firms exhibit lower leverage, a shorter debt maturity, a lower dividend payment and a higher cash level.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 52059.
Date of creation: 28 Jul 2013
Date of revision: 15 Oct 2013
R&D intensity; asset specificity; growth opportunities; information asymmetry; financing decisions;
Find related papers by JEL classification:
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
- O32 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Management of Technological Innovation and R&D
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