Creditor Rights and R&D Expenditures
Article first published online: 26 SEP 2011
© 2011 Blackwell Publishing Ltd
Corporate Governance: An International Review
Volume 20, Issue 1, pages 3–20, January 2012
How to Cite
Seifert, B. and Gonenc, H. (2012), Creditor Rights and R&D Expenditures. Corporate Governance: An International Review, 20: 3–20. doi: 10.1111/j.1467-8683.2011.00881.x
- Issue published online: 21 DEC 2011
- Article first published online: 26 SEP 2011
- Corporate Governance;
- Creditor Rights;
- Corporate Innovation;
- R&D Intensity
Manuscript Type: Empirical
Research Question/Issue: This study examines the impact of creditor rights on R&D intensity (R&D/total assets). We argue that managers in countries with strong creditor rights have more incentives to reduce cash flow risk and therefore limit expenditures on R&D more than managers located in countries with weak creditor rights.
Research Findings/Insights: Using a sample of over 21,000 firms from 41 countries, our research is one of the first to document that strong creditor rights are indeed associated with reduced R&D intensity. This negative relationship is observed in market-based countries, but not in bank-based countries. Moreover, the results show that the negative effect of creditor rights on R&D intensity is usually stronger (more negative) for firms facing or near financial distress. We observe that the determinants for R&D intensity consist of both country and firm level variables and firm level variables appear to be more important in explaining the variance of R&D intensity.
Theoretical/Academic Implications: This study documents an important link between creditor rights and R&D intensity. Our empirical procedure specifically accounts for the fact that R&D intensity and debt are likely to be jointly determined.
Practitioner/Policy Implications: This research is important to policy makers interested in understanding the determinants of firms' R&D intensity. In particular, our study suggests a possible harmful effect of strong creditor rights, namely the possibility that R&D intensity will be lowered.