Leverage target and R&D spending

Sharier Azim Khan

Review of Financial Economics, 2024, vol. 42, issue 1, 93-105

Abstract: In this paper, I examine how capital structure (relative to target) affects the financing of R&D spending. Studies on capital structure have shown that firms adjust their debt levels toward target debt levels. I show that firms with below‐target debt are more likely to issue debt to finance R&D spending compared to firms that have above‐target debt. The results are stronger for firms that are smaller in size and firms that do not pay dividends. I also show that firms with below‐target debt are more likely to use a greater fraction of proceeds from net debt issuance to finance R&D spending (either directly or indirectly).

Date: 2024
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https://doi.org/10.1002/rfe.1189

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Persistent link: https://EconPapers.repec.org/RePEc:wly:revfec:v:42:y:2024:i:1:p:93-105

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