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Do firms use credit lines to support investment opportunities?: Evidence from success in R&D

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  • Lee, Jiyoon

Abstract

I provide empirical evidence that firms use credit lines to support investment opportunities that are available in good times, consistent with Lins et al., 2010’s survey findings. Employing patent grants as a proxy for R&D success, I find that innovative firms draw down credit lines to finance R&D success-driven capital expenditures. Credit-line drawdowns following R&D success are more pronounced in firms that depend heavily on external financing and incur large capital expenditures after R&D success. The results cannot be explained by credit-supply effects or time-varying state-level omitted variables. Overall, the results suggest that credit lines help firms take advantage of investment opportunities that are gained by R&D success.

Suggested Citation

  • Lee, Jiyoon, 2022. "Do firms use credit lines to support investment opportunities?: Evidence from success in R&D," Journal of Empirical Finance, Elsevier, vol. 69(C), pages 1-14.
    • Handle: RePEc:eee:empfin:v:69:y:2022:i:c:p:1-14
    DOI: 10.1016/j.jempfin.2022.08.001
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    More about this item

    Keywords

    Credit lines; Revolving credit; Patents; R&D success; Capital expenditure; Investment opportunities;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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