The nonlinear relationship between financial constraints and R&D investment: the mediating role of executive stock options

Sedki Zaiane and Halim Dabbou

Journal of Economic Studies, 2023, vol. 51, issue 6, 1165-1181

Abstract: Purpose - The current study aims to investigate the mediating role of executive stock options in the nonlinear relationship between financial constraints and research and development (R&D) investment through two measures of financial constraints. Design/methodology/approach - This study is based on a sample of 90 French firms for the period extending from 2008 to 2020. The authors employ a panel threshold method to analyze whether the impact of financial constraints on R&D investment depends on the level of financial constraints or not. Findings - Using SA index (Hadlock and Pierce, 2010) and FCP index (Schaueret al., 2019) as measures of financial constraints, the authors demonstrate that the relationship between financial constraints and R&D investment is nonlinear. Moreover, the authors find that executive stock options mediate partially the relationship between financial constraints and R&D investment. More specifically, the authors show that stock options could play two roles depending on the level of the financial constraints; inconsistent mediation for firms with low/medium level of financial constraints and partial mediation for highly constrained firms. Originality/value - This paper is the first to the best of the authors' knowledge to investigate the nonlinear relationship between financial constraints and R&D investment as well as the mediating role of executive stock option using dynamic panel threshold models.

Keywords: CEO stock options pay; Financial constraints; R&D investment; Panel threshold models; Mediation; C24 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jespps:jes-08-2023-0424

DOI: 10.1108/JES-08-2023-0424

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