Corporate innovation, default risk, and bond pricing

Hsu, Po–Hsuan; Lee, Hsiao-Hui; Liu, Alfred Zhu; Zhang, Zhipeng

doi:10.1016/j.jcorpfin.2015.09.005

Cited by 138 publications

(121 citation statements)

References 46 publications

Supporting

Mentioning

101

Contrasting

Unclassified

Order By: Relevance

“…As discussed in Hsu, Lee, Liu and Zhang (), aggregate and/or industry‐level omitted variables, including business/economy cycles, industry life cycles, industrial structures, and time‐variant innovation opportunities, could potentially affect empirical tests. To mitigate this issue, they suggest including year dummies and removing the industry averages from all firm‐level variables in an industry fixed effects specification.…”

Section: Resultsmentioning

confidence: 99%

CEO Incentives and Corporate Innovation

Nguyen

2018

The Financial Review

View full text Add to dashboard Cite

Using scaled wealth‐performance sensitivity as my measure of Chief Executive Officer (CEO) incentives, and utilizing cross‐sectional variations in industry innovativeness, product market competition and firms’ degree of exposure to the market for corporate control for identification purposes, I find that higher long‐term incentives that stem from CEO holdings of unvested options are associated with greater subsequent corporate innovation in innovative industries, competitive product markets, and firms more exposed to the threat of hostile takeovers, that is, exactly where incentivizing innovation is a matter of necessity. I address the endogeneity concerns with systems of simultaneous equations estimated using three‐stage least squares. A possible channel for the observed relation between unvested options‐based incentives and subsequent corporate innovation is that these incentives encourage managers to undertake riskier projects to achieve long‐term economic benefits.

show abstract

Section: Resultsmentioning

confidence: 99%

CEO Incentives and Corporate Innovation

Nguyen

2018

The Financial Review

View full text Add to dashboard Cite

show abstract

“…Patents have been actively traded in intellectual property markets (Lev 2001) and serve as collateral for secured credit (Mann 2017). Several recent studies provide empirical evidence of the positive impact of disclosed patent activities on firm performance and financing opportunities, including Gunny and Zhang (2014), Hsu et al (2015), Plumlee et al (2015), and Chava et al (2017). study the subsequent output effect from a decision related to an earnings management input.…”

mentioning

confidence: 99%

The Real Effects of Real Earnings Management: Evidence from Innovation

Bereskin

Hsu

Rotenberg

2018

Contemporary Accting Res

Self Cite

110

View full text Add to dashboard Cite

We examine the consequences of real earnings management from an innovation perspective and investigate the patent output of firms likely to be managing earnings through altering their R&D expenditures. We find that R&D cuts related to earnings management lead to fewer patents, less influential patent output, and lower innovative efficiency compared to other R&D cuts. Our results thus suggest that real earnings management may obstruct firms’ technological progress and highlight the potential costs of managerial manipulation of R&D expenditures to alter reported earnings.

show abstract

“…Hsu et al. () document that patenting activities lead to lower bond premiums and excess returns because bondholders perceive these firms to have a lower default probability. Similarly, Plumlee et al.…”

mentioning

confidence: 99%

Does the Riskiness of R&D Outweigh Its Benefits? The Perspective of US Private Lenders

Ciftci¹,

Darrough²

2016

Business Fin & Account

View full text Add to dashboard Cite

We investigate the relationship between R&D investments and loan spread. Prior research documents that R&D is associated with greater future benefits and risks, suggesting that the valuation of R&D depends on a tradeoff between the two. Some research finds that bondholders consider that the benefits of R&D outweigh its risks: R&D is negatively associated with bond yields. This is surprising given that debt holders are more concerned about downside risk due to asymmetric payoffs. Using data on private debt from the US, we find an overall positive association between loan spread and R&D intensity, suggesting that the riskiness of R&D appears to outweigh its benefits for private lenders. Furthermore, an asymmetric payoff structure implies that the risks of R&D for lenders increase with default risk. Consistent with this argument, we find a positive association between R&D and loan spread for firms that are smaller, with high default‐risk ratings, unrated (no public debt), or in industries with weaker legal protection. Unrated firms are in the most R&D‐intensive group and make up nearly 60% of the firms with private debt. Consequently, studies that exclude unrated firms are likely to present an incomplete picture of the perspective of debt holders on R&D.

show abstract

Corporate innovation, default risk, and bond pricing

Cited by 138 publications

References 46 publications

CEO Incentives and Corporate Innovation

CEO Incentives and Corporate Innovation

The Real Effects of Real Earnings Management: Evidence from Innovation

Does the Riskiness of R&D Outweigh Its Benefits? The Perspective of US Private Lenders

Contact Info

Product

Resources

About