Effects of Debt Financing Decisions on Profitability: A Comparison of USA and Europe Biopharmaceutical Industry

Emmanuel Nkansah ()
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Emmanuel Nkansah: Jennings A. Jones College of Business, Middle Tennessee State University, Murfreesboro, TN 37130, USA

IJFS, 2025, vol. 13, issue 3, 1-23

Abstract: Debt financing is important for financing major investments in the biopharmaceutical industry. Debt financing allows companies to raise funds without giving up ownership or control through indenture and covenants of the company. In this study, I analyze the effects of debt financing decisions on profitability in the biopharmaceutical industry. I find that short-term debt, long-term debt, and total debt negatively impact the return on assets (ROA) as a firm’s profitability measure. A comparison is made between American and European biopharmaceutical firms, and the result shows the negative effects of short-term and long-term debt on profitability persist more for US biopharmaceutical firms than European firms. Short-term and long-term debt both impact profitability negatively with 10-year lagged R&D intensity and financial distress. Short-term debt’s negative impact is stronger post-COVID-19, indicating increased financial strain. Long-term debt consistently affects profitability negatively, with relatively stable effects during the pre- and post-COVID-19 pandemic.

Keywords: debt; short-term debt; long-term debt; profitability; US biopharmaceutical; Europe biopharmaceutical (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2025
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