The Effects of Innovation on Capital Structure: Evidence from US and European Firms

Kolade David Oke (), Radu Burlacu (), Isabelle Girerd-Potin () and Gilles Sanfilippo ()
Additional contact information
Kolade David Oke: CERAG - Centre d'études et de recherches appliquées à la gestion - UGA - Université Grenoble Alpes
Radu Burlacu: CERAG - Centre d'études et de recherches appliquées à la gestion - UGA - Université Grenoble Alpes
Isabelle Girerd-Potin: CERAG - Centre d'études et de recherches appliquées à la gestion - UGA - Université Grenoble Alpes, UGA - Université Grenoble Alpes, Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - UGA - Université Grenoble Alpes

Post-Print from HAL

Abstract: This paper investigates the impact of innovation, particularly in the form of patents and citations, on the capital structure decisions of firms in the US and Europe. As firms increasingly rely on intangible assets like intellectual property, understanding how innovation influences financing choices is crucial. Building on a number of financial theories, the study explores whether innovative firms prefer equity over debt due to the intangible nature of their assets and the financing challenges associated with these assets. Using a comprehensive dataset derived from the PATSTAT and EIKON databases, this research employs multiple regression models to analyse the relationship between innovation metrics (patents and citations) and capital structure, measured by market and book leverage. The study also considers macroeconomic factors, such as GDP growth, inflation, and yield spread, as moderating variables that influence this relationship. The results show that innovation has a significant impact on capital structure decisions, with innovative firms more likely to favour equity financing. However, during periods of economic expansion, as measured by GDP growth rate, this relationship between innovation and leverage is mitigated, showing a shift towards debt. This paper contributes to the literature by providing new insights into the complex relationship between innovation and capital structure, highlighting the role of intangible assets and external economic factors in shaping firms' financing strategies.

Date: 2025-06-23
References: Add references at CitEc
Citations:

Published in 18th International Risk Management Conference (IRMC 2025), Jun 2025, Bari (IT), Italy. ⟨10.2139/ssrn.6734316⟩

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

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:hal:journl:hal-05770349

DOI: 10.2139/ssrn.6734316

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().