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CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology KTH/CESIS Working Paper Series in Economics and Institutions of Innovation

No 174:
Finance and R&D Investments - is there a debt overhang effect on R&D investments?

Gustav Martinsson ()

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.

Keywords: Econometrics; Financial Economics; Financial Markets; R&D; Financing Constraints; (follow links to similar papers)

JEL-Codes: C01; O16; O30; (follow links to similar papers)

65 pages, March 25, 2009

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