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R&D sensitivity to asset sale proceeds: New evidence on financing constraints and intangible investment

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  • Borisova, Ginka
  • Brown, James R.

Abstract

We examine the intersection between corporate divestitures of tangible assets and investment in intangible capital (R&D) to provide new tests for the impact financing constraints have on real activity. A positive R&D sensitivity to asset sale proceeds indicates binding financing constraints since cash inflows from tangible asset sales are negatively correlated with productivity shocks and not otherwise connected to intangible investment via non-financial channels. Using a variety of estimation approaches, we document a strong, positive link between cash inflows from fixed asset sales and corporate R&D investment, but only among firms most likely facing binding financing constraints. These results offer robust evidence that financing frictions impact the increasingly important yet understudied intangible corporate investments that drive innovative activity, and they highlight a previously unexplored but potentially valuable use of proceeds from fixed asset divestitures.

Suggested Citation

  • Borisova, Ginka & Brown, James R., 2013. "R&D sensitivity to asset sale proceeds: New evidence on financing constraints and intangible investment," Journal of Banking & Finance, Elsevier, vol. 37(1), pages 159-173.
  • Handle: RePEc:eee:jbfina:v:37:y:2013:i:1:p:159-173 DOI: 10.1016/j.jbankfin.2012.08.024
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    Cited by:

    1. Oscar Mauricio Valencia-Arana & Jose Eduardo Gomez-Gonzalez & Andrés Garcia-Suaza, 2017. "Young Innovative Firms, Investment-Cash Flow Sensitivities and Technological Misallocation," Borradores de Economia 1004, Banco de la Republica de Colombia.
    2. Carboni, Oliviero A., 2017. "The effect of public support on investment and R&D: An empirical evaluation on European manufacturing firms," Technological Forecasting and Social Change, Elsevier, vol. 117(C), pages 282-295.
    3. Hans Lööf & Pardis Nabavi, 2016. "Innovation and credit constraints: evidence from Swedish exporting firms," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 25(3), pages 269-282, April.
    4. Alfranseder, Emanuel & Dzhamalova, Valeriia, 2014. "The Impact of the Financial Crisis on Innovation and Growth: Evidence from Technology Research and Development," Knut Wicksell Working Paper Series 2014/8, Lund University, Knut Wicksell Centre for Financial Studies.
    5. Stephen J. Terry, 2015. "The Macro Impact of Short-Termism," Discussion Papers 15-022, Stanford Institute for Economic Policy Research.
    6. Chen, Shenglan & Lin, Bingxuan & Lu, Rui & Ma, Hui, 2016. "Pay for accounting performance and R&D investment: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 44(C), pages 142-153.
    7. Vithessonthi, Chaiporn & Racela, Olimpia C., 2016. "Short- and long-run effects of internationalization and R&D intensity on firm performance," Journal of Multinational Financial Management, Elsevier, vol. 34(C), pages 28-45.
    8. repec:eee:jcecon:v:45:y:2017:i:3:p:498-519 is not listed on IDEAS

    More about this item

    Keywords

    Financing constraints; Corporate divestitures; R&D; Innovation;

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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