How R&D investment affects bondholder wealth?

Abstract

ABSTRACT Purpose: This paper focuses on creditors as a key group of stakeholders in corporate finance and governance, and develops a contingency perspective to understand how corporate investment in R&D activities affects creditor value through influencing a firm’s creditworthiness among investors. Design: This study is based on a sample of publicly traded firms in the US. during 1994–2017. Various regression models are applied to analyze the archival data. Findings: This paper shows that a firm’s creditworthiness increases with R&D intensity initially but falls when R&D intensity keeps increasing and surpasses a certain threshold. Moreover, such curvilinear relationship is less pronounced when the firm is of low disclosure quality and is less concerned with financial distress. Originality: Although prior research has intensively studied how corporate R&D activities affect shareholders, less attention has been paid to the impact of corporate R&D on other stakeholders. This study fills this void by examining how R&D activities affect creditors.