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Leverage target and R&D spending

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  • Sharier Azim Khan

Abstract

In this paper, I examine how capital structure (relative to target) affects the financing of R&D spending. Studies on capital structure have shown that firms adjust their debt levels toward target debt levels. I show that firms with below‐target debt are more likely to issue debt to finance R&D spending compared to firms that have above‐target debt. The results are stronger for firms that are smaller in size and firms that do not pay dividends. I also show that firms with below‐target debt are more likely to use a greater fraction of proceeds from net debt issuance to finance R&D spending (either directly or indirectly).

Suggested Citation

  • Sharier Azim Khan, 2024. "Leverage target and R&D spending," Review of Financial Economics, John Wiley & Sons, vol. 42(1), pages 93-105, January.
    • Handle: RePEc:wly:revfec:v:42:y:2024:i:1:p:93-105
    DOI: 10.1002/rfe.1189
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    References listed on IDEAS

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