Corporate R&D and Creditor Value: A Contingency Perspective

Jiameng Ma (School of Management, Shanghai University, Shanghai 200444, China)

Article ID: 1099



This study investigates the relationship between corporate R&D and creditor value. The empirical results suggest that such relationship is contingent on the situations of existing R&D investment and institutional arrangement of corporate governance. We find that R&D investment increases creditor value when insufficient R&D threatens survival, while reduces creditor value when such threat is mitigated. Moreover, such curvilinear relationship is mainly driven by firms with relatively weak managerial entrenchment. Hypotheses are tested with 98 U.S. listed firms in manufacturing sector over 2001-2007.


R&D; Innovation; Creditor; Entrenchment; Corporate Governance

Full Text:



[1] Cockburn, I. Griliches, Z.. Industry effects and appropriability measures in the stock markets valuation of R&D and patents. American Economic Review, 1988, 78: 419-423.

[2] Kor, Y. Y., Mahoney, J. T.. How dynamics, management, and governance of resource deployments influence firm-level performance. Strategic Management Journal, 2005, 26: 489-496.

[3] Eberhart, A., Maxwell, W., Siddique, A.. A Reexamination of the Tradeoff between the Future Benefit and Riskiness of R&D Increases. Journal of Accounting Research, 2008, 46: 27-52.

[4] Shi, C.. On the trade-off between the future benefits and riskiness of R&D: A bondholders’ perspective. Journal of Accounting and Economics, 2003, 35: 227-254.

[5] Mayer C. 1988. New issues in corporate finance. European Economic Review, 32: 1167-1188.

[6] Acharya, V. V., Subramanian, K. V.. Bankruptcy codes and innovation. Review of Financial Studies, 2009, 22: 4949-4988.

[7] Bebchuk, L., Cohen, A., Ferrell, A.. What matters in corporate governance? Review of Financial Studies, 2009, 22: 783-827.

[8] Bertrand, M., Mullainathan, S.. Enjoying the quiet life? Corporate governance and managerial preferences. Journal of Political Economy, 2003, 111: 1043-1075.

[9] Fama, E. F., Miller, M. H.. The Theory of Finance. Hinsdale, IL: The Dryden Press, 1972.

[10] Jensen, M. C., Meckling, W. H.. Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 1976, 3: 305-360.

[11] Myers, S.. The determinants of corporate borrowing. Journal of Financial Economics, 1977, 5: 147-175.

[12] Smith, C. W., Warner, J. B.. On financial contracting: An analysis of bond covenants. Journal of Financial Economics, 1979, 7: 117-161.

[13] Altman, E. I.. Measuring corporate bond mortality and performance. Journal of Finance, 1989, 44: 909-922.

[14] Elkamhi, R., Pungaliya, R., Vijh, A.. What do credit markets tell us about the speed of leverage adjustment? Management Science, 2014, 60: 2269-2290.

[15] Sengupta, P.. Corporate disclosure quality and the cost of debt. The Accounting Review, 1998, 73: 459-474.

[16] Vassalou, M., Xing, Y.. Default risk in equity returns. Journal of Finance, 2004, 59: 831-868.

[17] Hay, D. A., Morris, D. J.. Industrial Economics: Theory and Evidence. Oxford: Oxford University Press, 1979.

[18] Beatty, R. P., Zajac, E. J.. Top management incentives, monitoring, and risk sharing: a study of executive compensation, ownership, and board structure in initial public offerings. Administrative Science Quarterly, 1994, 39: 313-335.

[19] Donaldson, G.. Corporate Debt Capacity: A Study of Corporate Debt Policy and the Determination of Corporate Debt Capacity. Cambridge, MA: Harvard University Graduate School of Business Administration, 1961.

[20] Williamson, O. E.. Managerial discretion and business behavior. American Economic Review, 1963, 53: 1032-1057.

[21] Hill, C. W., Snell, S. A.. External control, corporate strategy, and firm performance. Strategic Management Journal, 1988, 9: 577-590.

[22] Mansfield, E.. Industrial Research and Technological Innovation: An Econometric Analysis. New York: Norton, 1968.

[23] Balakrishnan, S., Fox, I.. Asset specificity, firm heterogeneity and capital structure. Strategic Management Journal, 1993, 14: 3-16.

[24] Kochhar, R.. Explaining firm capital structure: The role of agency theory vs transaction cost economics. Strategic Management Journal, 1996, 17: 713-728.

[25] Vincente-Lorente, J. D.. Specificity and opacity as resource-based determinants of capital structure: evidence for Spanish manufacturing firms. Strategic Management Journal, 2001, 22: 157-177.

[26] Williamson, O. E.. Corporate finance and corporate governance. Journal of Finance, 1988, 43: 567-591.

[27] Gompers, P. A., Ishii, J. L., Metrick, A.. Corporate governance and equity prices. Quarterly Journal of Economics, 2003, 118: 107-155.

[28] Borokhovich, K. A., Brunarski, K. R., Parrino, R.. CEO contracting and antitakeover amendments. Journal of Finance, 1997, 52: 1495-1517.

[29] Low, A.. Managerial risk-taking behavior and equity-based compensation. Journal of Financial Economics, 2009, 92: 470-490.

[30] Morck, R., Shleifer, A., Vishny, R. W.. Do managerial objectives drive bad acquisitions? Journal of Finance, 1990, 45: 31-48.

[31] Meulbroek, L. K., Mitchell, M. L., Mulherin, J. H., Netter, J. M., Poulsen, A. B.. Shark repellents and managerial myopia: An empirical test. Journal of Political Economy, 1990, 98: 1108-1117.

[32] O’Connor, M., Rafferty, M.. Corporate governance and innovation. Journal of Financial and Quantitative Analysis, 2012, 47: 397-413.

[33] Dick-Nielsen, J.. Liquidity biases in TRACE. Journal of Fixed Income, 2009, 19: 43-55.

[34] Bessembinder, H., K. Kahle, W. Maxwell, D. Xu.. Measuring abnormal bond performance. Review of Financial Studies, 2009, 22: 4219-4258.

[35] Campbell, J., Taksler, G.. Equity volatility and corporate bond yields. Journal of Finance, 2003, 58: 2321-2349.

[36] Franko, L. G.. Global corporate competition: Who’s winning, who’s losing, and the R&D factor as one reason why. Strategic Management Journal, 1989, 10: 449-474.

[37] Cohen, W. M., Levinthal, D. A.. Absorptive capacity: a new perspective on learning and innovation. Administrative Science Quarterly, 1990, 35: 128-152.


  • There are currently no refbacks.
Copyright © 2019 Jiameng Ma

Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.