The Implications of Debt Heterogeneity for R&amp;D Investment and Firm Performance

Polizzi, David; O’Brien, Jonathan; Yoshikawa, Toru

doi:10.5465/amj.2008.30772877

Cited by 142 publications

(105 citation statements)

References 61 publications

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“…Finally, the bottom row contains the totals for each column. A chi-square test was conducted to examine David, O'Brien, and Yoshikawa (2008); a multidisciplinary exemplar is Laplume, Sonpar, and Litz (2008). h A unidisciplinary exemplar of this scholarship is Guthrie and Datta (2008); a multidisciplinary exemplar is Simons and Roberts (2008).…”

Section: Resultsmentioning

confidence: 99%

The Myth of “the” Micro-Macro Divide: Bridging System-Level and Disciplinary Divides

Molloy

Ployhart

Wright

2010

Journal of Management

126

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Section: Resultsmentioning

confidence: 99%

The Myth of “the” Micro-Macro Divide: Bridging System-Level and Disciplinary Divides

Molloy

Ployhart

Wright

2010

Journal of Management

126

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“…David, O'Brien, & Yoshikawa, 2008;Uzzi, 1999) for at least two reasons: (i) to increase alignment of incentives between family owners and creditors to maximize firm value (instead of shareholder value); and (ii) to avoid excessive monitoring costs, which make highly restrictive contracts less efficient in family firms.…”

Section: Debt Contract Strictness and Family Firmsmentioning

confidence: 99%

“…Although past work has construed bank debt or commercial loans as relational debt (Wang & Thornhill, 2010), the frequency, intensity, and richness of interactions are not known. Acknowledging David et al (2008) finding that debt is heterogeneous, future studies should qualitatively assess the nature of such relational debt. Sixth, a variety of factors can also influence the forbearance relation between coverage slack and R&D intensity including, but not limited to, social capital of the family, relational aspects of lending, pyramidal holdings that provide indirect guarantees, and industry outlook.…”

Section: Limitations and Future Research Directionsmentioning

confidence: 99%

Pound of Flesh? Debt Contract Strictness and Family Firms

Hillier¹,

Martínez

Patel

et al. 2017

Entrepreneurship Theory and Practice

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While past work finds support for both higher and lower cost of debt among family firms, whether lower shareholder-creditor agency conflicts in family firms translate into greater exante contracting efficiency (i.e., lower debt contract strictness) remains unexplored. Drawing on a shareholder-creditor agency framework and costly contracting theory, creditors, expecting firm value maximization rather than shareholder value maximization from family firms, may offer less strict debt contracts to increase contracting efficiency. We find in a sample of 716 publicly traded US firms (2001)(2002)(2003)(2004)(2005)(2006)(2007)(2008)(2009)(2010)) that family firms have less strict debt contracts, which are even less strict when family firms have higher asset tangibility. Although increases in R&D investments could lead to more pronounced shareholder-creditor agency conflicts, given family firms' preferences for lower risk and growth, debt contract strictness among family firms is not positively associated with higher R&D intensity.

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“…If external financing for R&D is constrained, firms engaging in R&D may have to rely to a larger extent on internal financial resources than firms that mainly invest in capital goods (e.g. Carpenter and Petersen 2002, Chiao 2002, David et al 2008. Theoretical and empirical literature has illustrated that firms foremost use internal funds to finance innovation projects as compared to debt indicating such a gap in the cost of capital (Leland and Pyle 1977, Bhattacharya and Ritter 1983, Hall 1990, Himmelberg and Peterson 1994, Harhoff 1998, Bougheas et al 2003, Czarnitzki and Hottenrott 2009).…”

Section: Conceptual Frameworkmentioning

confidence: 99%

Industrial Research Versus Development Investment: The Implications of Financial Constraints

2009

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Industrial research and development (R&D) activities constitute an important driver of economic competitiveness. The impact of R&D on productivity at the firm level stems from the implementation of newly generated knowledge and technological discoveries into new products, processes or services. Particularly the 'R' component of R&D has been found to drive productivity at the firm level. That is firms that invest a larger fraction of their total R&D on research (relative to development) are more productive both in terms of the production of new knowledge, e.g. patens as well as overall factor productivity.However, economic theory suggests that two types of market failure affect private investments in research. First, private rates of return from research activities are smaller than social rates of return because of the incompleteness of appropriability of the knowledge that is being created by investment. Second, especially for (basic) research firms may face difficulties in attracting external investors or get bank loans for financing these activities.Complexity, specificity and outcome uncertainty of such investment projects may make it particularly difficult for outsiders to judge the expected return of 'R' projects. Hence, for firms with limited internal liquidity R&D investments may therefore be constrained. If information asymmetries are larger for 'R' than for 'D' financing constraints may be more binding for 'R' projects. Underinvestment in 'R', however, may result in a noticeable slowdown in productivity growth and consequently have particularly detrimental effects on technological progress and economic development.Previous studies on financing constraints for R&D do not explicitly distinguish between the different components of R&D. This article explicitly takes the heterogeneity of the two components into account. We argue that financing development 'D' externally should be less critical than it is for industrial research 'R'. First, our results show that firms' investment in 'R' are more sensitive to liquidity than investments in 'D' indicating that firms have to rely even more on internal funds for financing the former type of activities. This may be due to the fact that the latter occurs later in the R&D process and is closer to yielding returns. That is, firms cut 'R', before they reduce 'D' if they have to allocate scarce internal funds. This has implications for R&D policy. If financial constraints for R&D are driven by the 'R' component, industrial research projects may deserve special support. Second, we show that public subsidies directed at 'R' indeed alleviate financing constraints. Industrial Research versus Development Investment:The Implications of Financial Constraints* August 2009Abstract Previous literature provided evidence on financing constraints for investment in R&D activities due to capital market imperfections and special features of R&D investments. Moreover, it has been shown that a shift in capital structure towards more debt, results in a reduction of R&D investments. This ...

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The Implications of Debt Heterogeneity for R&D Investment and Firm Performance

Cited by 142 publications

References 61 publications

The Myth of “the” Micro-Macro Divide: Bridging System-Level and Disciplinary Divides

The Myth of “the” Micro-Macro Divide: Bridging System-Level and Disciplinary Divides

Pound of Flesh? Debt Contract Strictness and Family Firms

Industrial Research Versus Development Investment: The Implications of Financial Constraints

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