Corporate Financing Decisions on Research and Development Increases

Yung-Chin Chiu, Ching-Wen Liang and Yanzhi Wang

Emerging Markets Finance and Trade, 2012, vol. 48, issue 0, 88-109

Abstract: This paper investigates corporate financing decisions on corporate investment using cases of research and development (R&D) spending. We focus on U.S. firms with large R&D increases in 1986 to 2007, and we find that most firms with increases in R&D outlays use internal funds to finance the projects. R&D increasing firms with ex ante external financing are prone to low book-to-market ratios, indicating that firms choose external funds for their investment needs when the market timing is good. Finally, we find that the market reaction to R&D increases using internal funds is similar to R&D increases using external funds.

Keywords: financing decision; market timing; R&D investment (search for similar items in EconPapers)
Date: 2012
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