Corporate R&D and Creditor Value: A Contingency Perspective

Abstract

This study investigates the relationship between corporate R&D and creditor value. The empirical results suggest that such relationship is contingent on the situations of existing R&D investment and institutional arrangement of corporate governance. We find that R&D investment increases creditor value when insufficient R&D threatens survival, while reduces creditor value when such threat is mitigated. Moreover, such curvilinear relationship is mainly driven by firms with relatively weak managerial entrenchment. Hypotheses are tested with 98 U.S. listed firms in manufacturing sector over 2001-2007.