Corporate innovation, default risk, and bond pricing

Po-Hsuan Hsu, Hsiao-Hui Lee, Alfred Zhu Liu and Zhipeng Zhang

Journal of Corporate Finance, 2015, vol. 35, issue C, 329-344

Abstract: We propose firm-level innovation performance to be an important determinant of corporate creditworthiness and examine this relation from the perspective of bond investors. We find that firms' default probabilities are negatively related to the quantity, impact, originality, and generality of their patent portfolios. Moreover, bonds issued by more innovative firms have lower issuance premiums and lower realized excess returns. Our findings are further supported by instrumental regressions that use monetary and time costs of innovation, and by difference-in-differences tests based on exogenous shocks from state-level R&D tax credits.

Keywords: Innovation; Patent; Default risk; Bond premium; Bond return (search for similar items in EconPapers)
JEL-codes: G12 O32 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (56)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:35:y:2015:i:c:p:329-344

DOI: 10.1016/j.jcorpfin.2015.09.005

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