R&D Intensity and Financing Decisions: Evidence from European Firms

ELKEMALI, Taoufik and BEN REJEB, Aymen and MATOUSSI, Hamadi (2013): R&D Intensity and Financing Decisions: Evidence from European Firms.

Abstract

This paper examines whether research and development (R&D) intensity affects the firm’s financing decisions. We use a sample of European firms in the period 2002-2011. We argue that R&D asset has three fundamentals characteristics that make it different from ordinary investment and constrain financing choices of the firm. First, The R&D is a specific non-redeployable asset with higher premium risk. Second, it generates stronger growth opportunities and, third, represents a major contributor to asymmetric information. Based on the implications of the transaction cost theory, the agency cost and pecking order theory, we argue that these fundamentals characteristics affect the financial policy. Our results show that R&D-intensive firms exhibit lower leverage, a shorter debt maturity, a lower dividend payment and a higher cash level.

• Item Type: MPRA Paper
• Language: English
• Keywords: R&D intensity; asset specificity; growth opportunities; information asymmetry; financing decisions
• Subjects: D - Microeconomics > D2 - Production and Organizations > D23 - Organizational Behavior ; Transaction Costs ; Property Rights; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information ; Mechanism Design; G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill; G - Financial Economics > G3 - Corporate Finance and Governance > G35 - Payout Policy; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O32 - Management of Technological Innovation and R&D

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