The implications of debt heterogeneity for R&D investment and firm performance

• Main Authors: DAVID, Parthiban, O'Brien, Jonathan P., YOSHIKAWA, Toru
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2008
• Subjects: Capital structure; institutional investors; corporate governance; development projects; cost; innovation; strategy; agency; boards; US; Corporate Finance; Strategic Management Policy
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/2909; https://ink.library.smu.edu.sg/context/lkcsb_research/article/3908/viewcontent/AMJ08.pdf
• Institution: Singapore Management University

An assumption in prior research is that debt is homogeneous and provides inappropriate governance for R&D investments. We argue that debt is heterogeneous: although transactional debt does indeed impose strict contractual constraints that provide inappropriate governance for R&D investments, relational debt has very different characteristics that provide more appropriate governance. Using a sample of Japanese firms, we find that firms that align their debt structures with their R&D investments perform better than those that are misaligned. Furthermore, firms tend to align their debt structure with R&D investments, but only after deregulation permits relatively free access to various types of debt.