Do or Die: Analysis of Bankruptcy Risk from a Research and Development Perspective

Augustine Tarkom and Nacasius U. Ujah

The International Trade Journal, 2023, vol. 37, issue 1, 91-114

Abstract: Arguably, R&D remains one of the main drivers for signaling, and its essence in reducing bankruptcy risk (BR) is critical. We revisit the literature and debate and find that since 1982, R&D investment has, on average, been increasing at an annual rate of 0.033%, while BR has been decreasing at an annual rate of 9.02%. Empirically, we find consistent evidence that R&D investment reduces BR. Also, firms with a higher likelihood of bankruptcy have a higher marginal benefit from incremental investment in R&D. Additional results suggest that capital structure and other signaling strategies matter in how R&D affects BR.

Date: 2023
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DOI: 10.1080/08853908.2022.2111381

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