Abstract
The availabilities of debt for Chinese firms have been increased since 2008 due to the expansionary monetary policies. These policies triggered concerns over the impact of debt financing on firms’ technological innovation activities. Based on a sample of 225 listed computer and telecommunications equipment firms in China within 2008-2015, this study explored the effect of debt financing on two types of technological innovation, namely radical and incremental innovation. Specifically, both the direct effect of debt financing on technological innovation and its moderating effect on the relationship between R&D intensity and technological innovation were investigated. Results of this study reveal that radical innovation decreases with debt financing at decreasing rates, while incremental innovation is not affected by debt financing itself. In addition, debt financing interacted with R&D intensity exerts positive effect on both radical and incremental innovation. This study adds meaningful insights to the literature on financing technological innovation and builds a bridge connecting macroeconomic policies to firm activities.
Highlights
Debt played and will continue to play an important role in financing Chinese firms
H4: Debt financing interacted with R&D intensity exerts positive effect on incremental innovation
The correlation between two control variables, Sales and Firm size, is high. Both control variables were documented to be associated with technological innovation, to control for unobserved heterogeneity as much as possible, both variables were kept in models
Summary
Debt played and will continue to play an important role in financing Chinese firms. According to data from National Bureau of Statistics of China, debt financing accounts for more than 90% of the aggregate financing to the real economy in the past decade. The expansionary monetary policies triggered concerns over the impact of debt financing on firms’ activities. Among these activities, the activities related to technological innovation draw tremendous attentions from both economists and practitioners, as technological innovation is deemed to be a principle driver for firms to survive and thrive (Coccia, 2017). To provide the empirical evidence on the relationships between debt financing and two types of technological innovation, 225 listed Chinese computer and telecommunications equipment firms over the period of 2008–2015 were studied as sample firms. Literature review Previous literature has documented that debt financing is an important source to raise external capital for technological innovation, especially in bank-based counties (Czarnitzki & Kraft, 2009). Current literature unequivocally demonstrates the importance of debt financing but its impacts on technological innovation differ in various contexts
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