Finance and R&D Investments - is there a debt overhang effect on R&D investments?

Gustav Martinsson ()

No 174, Working Paper Series in Economics and Institutions of Innovation from Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies

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 (search for similar items in EconPapers)
JEL-codes: C01 O16 O30 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ino, nep-knm and nep-mic
Date: 2009-03-25
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Persistent link: http://EconPapers.repec.org/RePEc:hhs:cesisp:0174

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