Debt financing and technological innovation: evidence from China
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.
Keyword : debt financing, radical innovation, incremental innovation, R&D, negative binomial regression, China
How to Cite
Xin, K., Sun, Y., Zhang, R., & Liu, X. (2019). Debt financing and technological innovation: evidence from China. Journal of Business Economics and Management, 20(5), 841-859. https://doi.org/10.3846/jbem.2019.10185
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Czarnitzki, D., & Kraft, K. (2009). Capital control, debt financing and innovative activity. Journal of Economic Behavior & Organization, 71(2), 372-383. https://doi.org/10.1016/j.jebo.2009.03.017
Dahlin, K. B., & Behrens, D. M. (2005). When is an invention really radical? Defining and measuring technological radicalness. Research Policy, 34(5), 717-737. https://doi.org/10.1016/j.respol.2005.03.009
Davis, C., & Tomoda, Y. (2018). Competing incremental and breakthrough innovation in a model of product evolution. Journal of Economics, 123(3), 225-247. https://doi.org/10.1007/s00712-017-0568-y
de Jong, A., Verbeke, W., & Nijssen, E. (2014). Introduction to special issue: Sales and innovation. Journal of Product Innovation Management, 31(4), 643-646. https://doi.org/10.1111/jpim.12154
Deng, Y. H., Morck, R., Wu, J., & Yeung, B. (2015). China’s Pseudo-monetary Policy. Review of Finance, 19(1), 55-93. https://doi.org/10.1093/rof/rfu026
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Etzkowitz, A., & Etzkowitz, H. (2017). Counter-cyclical public venture capital: Debt-funding as an anti-austerity innovation strategy. Social Science Information Sur Les Sciences Sociales, 56(3), 477-495. https://doi.org/10.1177/0539018417719795
Fang, L. H., Lerner, J., & Wu, C. P. (2017). Intellectual Property rights protection, ownership, and innovation: Evidence from China. Review of Financial Studies, 30(7), 2446-2477. https://doi.org/10.1093/rfs/hhx023
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Feldhütter, P., Hotchkiss, E., & Karakaş, O. (2016). The value of creditor control in corporate bonds. Journal of Financial Economics, 121(1), 1-27. https://doi.org/10.1016/j.jfineco.2016.03.007
Ferraris, L., & Minetti, R. (2007). Foreign lenders and the real sector. Journal of Money Credit and Banking, 39(4), 945-964. https://doi.org/10.1111/j.1538-4616.2007.00052.x
Fores, B., & Camison, C. (2016). Does incremental and radical innovation performance depend on different types of knowledge accumulation capabilities and organizational size? Journal of Business Research, 69(2), 831-848. https://doi.org/10.1016/j.jbusres.2015.07.006
Garcia, R., & Calantone, R. (2002). A critical look at technological innovation typology and innovativeness terminology: a literature review. Journal of Product Innovation Management, 19(2), 110-132. https://doi.org/10.1016/S0737-6782(01)00132-1
Giannetti, C. (2012). Relationship lending and firm innovativeness. Journal of Empirical Finance, 19(5), 762-781. https://doi.org/10.1016/j.jempfin.2012.08.005
Gu, Y. Q., Mao, C. N. X., & Tian, X. (2017). Banks’ Interventions and Firms’ Innovation: Evidence from Debt Covenant Violations. Journal of Law & Economics, 60(4), 637-671. https://doi.org/10.1086/696703
Hall, B. H. (2002). The financing of research and development. Oxford Review of Economic Policy, 18(1), 35-51.
Hall, B. H., & Lerner, J. (2010). Chapter 14 – The financing of R&D and innovation. In B. H. Hall & N. Rosenberg (Eds.), Handbook of the Economics of Innovation (Vol. 1, pp. 609-639). North-Holland: Elsevier. https://doi.org/10.1016/S0169-7218(10)01014-2
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Heirman, A., & Clarysse, B. (2007). Which tangible and intangible assets matter for innovation speed in start-ups? Journal of Product Innovation Management, 24(4), 303-315. https://doi.org/10.1111/j.1540-5885.2007.00253.x
Henderson, M. T. (2007). Paying CEOS in bankruptcy: Executive compensation when agency costs are low. Northwestern University Law Review, 101(4), 1543-1618.
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