Existing literature has focused almost exclusively on financing innovation by using equity or internal financial resources. I have been studying the relationship between capital structure and corporate innovation. In particular, I have been focusing on the impact of debt maturity structure on the quantity and quality of firms’ innovation outputs. I suppose that capital structure decisions have an important impact on the corporate innovation, especially, policies on the maturity of corporate debt may have a contribution on the success of innovative investment. Based on this consideration, I divided my thesis into two main parts: the first provides an overview on theoretical foundations of financing innovation and corporate innovation and discussing the theories on underinvestment and overinvestment to clarify the relationship between financing decisions and investment decisions. The second focuses on the empirical test for hypotheses, whether debt maturity structure can have an impact on the quality and quatity of corporate innovation. By using data from COMPUSTAT covered a large panel of firms from 1976 to 2006 and NBER patent and Citation Database, I demonstrate that the leverage ratio and the percentage of long-term debt in debt structure is negatively associated with innovation outputs. These results are consistent with the theory predicting that the use of short-term debt mitigates the underinvestment problem caused by debt financing. I employ the Generalized Method of Moments (GMM) approach and the Panel Vector Autoregression (PVAR) method to account for the reverse causality running from innovation to capital structure. My results reveal that the impact of capital structure on innovation remains significant after the reverse causality is controlled for. My study gives a contribution to the literature of capital structure and corporate innovation, especially on the topic of financing innovation by debt channel.
Capital structure and corporate innovation
DIEM, Thi Thanh Hai
2015-01-01
Abstract
Existing literature has focused almost exclusively on financing innovation by using equity or internal financial resources. I have been studying the relationship between capital structure and corporate innovation. In particular, I have been focusing on the impact of debt maturity structure on the quantity and quality of firms’ innovation outputs. I suppose that capital structure decisions have an important impact on the corporate innovation, especially, policies on the maturity of corporate debt may have a contribution on the success of innovative investment. Based on this consideration, I divided my thesis into two main parts: the first provides an overview on theoretical foundations of financing innovation and corporate innovation and discussing the theories on underinvestment and overinvestment to clarify the relationship between financing decisions and investment decisions. The second focuses on the empirical test for hypotheses, whether debt maturity structure can have an impact on the quality and quatity of corporate innovation. By using data from COMPUSTAT covered a large panel of firms from 1976 to 2006 and NBER patent and Citation Database, I demonstrate that the leverage ratio and the percentage of long-term debt in debt structure is negatively associated with innovation outputs. These results are consistent with the theory predicting that the use of short-term debt mitigates the underinvestment problem caused by debt financing. I employ the Generalized Method of Moments (GMM) approach and the Panel Vector Autoregression (PVAR) method to account for the reverse causality running from innovation to capital structure. My results reveal that the impact of capital structure on innovation remains significant after the reverse causality is controlled for. My study gives a contribution to the literature of capital structure and corporate innovation, especially on the topic of financing innovation by debt channel.File | Dimensione | Formato | |
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