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Corporate Financing Decisions on Research and Development Increases

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  • Yung-Chin Chiu
  • Ching-Wen Liang
  • Yanzhi Wang

Abstract

This paper investigates corporate financing decisions on corporate investment using cases of research and development (R&D) spending. We focus on U.S. firms with large R&D increases in 1986 to 2007, and we find that most firms with increases in R&D outlays use internal funds to finance the projects. R&D increasing firms with ex ante external financing are prone to low book-to-market ratios, indicating that firms choose external funds for their investment needs when the market timing is good. Finally, we find that the market reaction to R&D increases using internal funds is similar to R&D increases using external funds.

Suggested Citation

  • Yung-Chin Chiu & Ching-Wen Liang & Yanzhi Wang, 2012. "Corporate Financing Decisions on Research and Development Increases," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(0), pages 88-109, January.
    • Handle: RePEc:mes:emfitr:v:48:y:2012:i:0:p:88-109
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    Cited by:

    1. Yano, Go & Shiraishi, Maho, 2020. "Finance, institutions, and innovation activities in China," Economic Systems, Elsevier, vol. 44(4).

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