Debt, Innovation, and Growth

Thomas Geelen, Jakub Hajda and Erwan Morellec
Additional contact information
Thomas Geelen: Copenhagen Business School - Department of Finance; Danish Finance Institute
Jakub Hajda: University of Lausanne; Swiss Finance Institute
Erwan Morellec: Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute

No 19-79, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: Recent empirical studies show that innovative firms heavily rely on debt financing. This paper investigates the relation between debt financing, innovation, and growth in a Schumpeterian growth model in which firms' dynamic R&D and financing choices are jointly and endogenously determined. The paper demonstrates that while debt hampers innovation by incumbents due to debt overhang, it also stimulates entry, thereby fostering innovation and growth at the aggregate level. The paper also shows that debt financing has large effects on firm entry, firm turnover, and industry structure and evolution. Lastly, it predicts substantial intra-industry variation in leverage and innovation, in line with the empirical evidence..

Keywords: debt; innovation; industry dynamics; growth (search for similar items in EconPapers)
JEL-codes: G32 O30 (search for similar items in EconPapers)
Pages: 61 pages
Date: 2019-07
New Economics Papers: this item is included in nep-bec, nep-cfn, nep-fdg, nep-gro, nep-ino, nep-sbm and nep-tid
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3416576 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1979

Access Statistics for this paper

More papers in Swiss Finance Institute Research Paper Series from Swiss Finance Institute Contact information at EDIRC.
Bibliographic data for series maintained by Ridima Mittal ().