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The nonlinear relationship between financial constraints and R&D investment: the mediating role of executive stock options

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  • Sedki Zaiane
  • Halim Dabbou

Abstract

Purpose - The current study aims to investigate the mediating role of executive stock options in the nonlinear relationship between financial constraints and research and development (R&D) investment through two measures of financial constraints. Design/methodology/approach - This study is based on a sample of 90 French firms for the period extending from 2008 to 2020. The authors employ a panel threshold method to analyze whether the impact of financial constraints on R&D investment depends on the level of financial constraints or not. Findings - Using SA index (Hadlock and Pierce, 2010) and FCP index (Schaueret al., 2019) as measures of financial constraints, the authors demonstrate that the relationship between financial constraints and R&D investment is nonlinear. Moreover, the authors find that executive stock options mediate partially the relationship between financial constraints and R&D investment. More specifically, the authors show that stock options could play two roles depending on the level of the financial constraints; inconsistent mediation for firms with low/medium level of financial constraints and partial mediation for highly constrained firms. Originality/value - This paper is the first to the best of the authors' knowledge to investigate the nonlinear relationship between financial constraints and R&D investment as well as the mediating role of executive stock option using dynamic panel threshold models.

Suggested Citation

  • Sedki Zaiane & Halim Dabbou, 2023. "The nonlinear relationship between financial constraints and R&D investment: the mediating role of executive stock options," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 51(6), pages 1165-1181, November.
    • Handle: RePEc:eme:jespps:jes-08-2023-0424
    DOI: 10.1108/JES-08-2023-0424
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    More about this item

    Keywords

    CEO stock options pay; Financial constraints; R&D investment; Panel threshold models; Mediation; C24;
    All these keywords.

    JEL classification:

    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models

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