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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

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

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.

Suggested Citation

  • Martinsson, Gustav, 2009. "Finance and R&D Investments - is there a debt overhang effect on R&D investments?," Working Paper Series in Economics and Institutions of Innovation 174, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
    • Handle: RePEc:hhs:cesisp:0174
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    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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