Abstract
This study investigates the relationships between debt maturity structure and corporation R&D investment. Using a large sample of US listed firms over the period of 1995 to 2015, it was found that the use of bank debt positively influences R&D investment, whereas the use of public debt exerts a negative impact. However, the Sarbanes-Oxley Act (SOX) mitigates the information asymmetry such that the advantages of private information from banks shrunk. As a result, public debtholders benefit more from the SOX and turn out to be positively influenced by the R&D investment after SOX. Moreover, bank debt impact on R&D spending reduces over the post-SOX. The results also find that the SOX influences the debt maturity on corporate R&D investment only for large corporations, the effects remain unchanged for small businesses.
Highlights
Knowledge, technical progress, and human capital exert a substantial impact on firm growth and survival
This study investigates the relationships between debt maturity structure and corporation R&D investment
The results find that the Sarbanes-Oxley Act (SOX) influences the debt maturity on corporate R&D investment only for large corporations, the effects remain unchanged for small businesses
Summary
Technical progress, and human capital exert a substantial impact on firm growth and survival. Highly innovative companies have difficulty in acquiring external funding due to the asymmetric information problem between firms and outside investors (Kamien & Schwartz, 1978) This asymmetric information favors the issue of private debt, as businesses must share their private information with debtholders to reveal that the investment is profitable, to access to finance for innovative projects. Whether shortterm bank borrowings and long-term public debt influence the pace of firm R&D investment remains an unresolved empirical issue. This study fills the gap in the literature by exploring the impact of debt maturity structure on corporate innovation. Given the limited empirical research on exploring the relationships between debt maturity structure and R&D investment in US firms, this work employs a measure for debt maturity.
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