Influence of Cross-Listing on the Relationship between Financial Leverage and R&D Investment: A Sustainable Development Strategy

Chi-Lin Yang and Jung-Ho Lai
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Chi-Lin Yang: Department of Urban Industrial Management and Marketing, University of Taipei, Taipei 11153, Taiwan
Jung-Ho Lai: Department of Finance, National Taipei University of Business, Taipei 10051, Taiwan

Sustainability, 2021, vol. 13, issue 18, 1-14

Abstract: Investment in research and development (R&D) is an important sustainable strategy for firms in developing unique products to own their differentiation and competitive advantages. Financial leverage is influential in R&D investment. However, previous studies identified different relationship between financial leverage and R&D investment. This study revisits this puzzle from a unique perspective that targets firms undertaking international cross-listings. This specification allows us to test whether firms are willing to prioritize R&D funding when debt capacity is enhanced. This is a new perspective that has never been explored in the relationship between debt financing and R&D investment. We find that the launch of cross-listing significantly increases the level of firm financial leverage, which is followed by a significant increase in corporate investment in R&D. The aggressive strategy of cross-listing firms that enhance financial leverage to support more investment in R&D further significantly influences their industrial rivals to increase investment in R&D as a responding strategy. Overall, these results show that firms exploit the timing of international cross-listing to increase their leverage to further fund R&D, which also stimulates an intra-industry contagion effect. Our findings suggest a new viable path for funding R&D that carries important implications for corporate sustainability.

Keywords: cross-listing; financial leverage; R&D investment; corporate sustainability (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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