Over the last few decades investments in research and development (R&D) projects have risen significantly. Many experts have found a positive relationship between R&D expenses and a company's value. However, investments in innovations are characterized by a high level of uncertainty. Often innovations generate income only in long run. These factors increase the probability of firms' financial distress considerably. Thus, the aim of the present paper is to evaluate financial distress costs at companies that invest in research and development projects. The study covers 389 innovative firms over the period from 2006 to 2015. The analysis is based on a direct and indirect costs evaluation. The first are estimated through panel logistic regression. Indirect costs are calculated as unexpected losses or profits relative to industry indicators. The paper confirms the existence of relation between R&D expenses and financial instability. The results of the research show that the total financial distress costs of innovative companies amount to 7.95% of total assets or 11.78% of the value of a company on average.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.
hi@scite.ai
10624 S. Eastern Ave., Ste. A-614
Henderson, NV 89052, USA
Copyright © 2024 scite LLC. All rights reserved.
Made with 💙 for researchers
Part of the Research Solutions Family.