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The interdependence of R&D activity and debt financing of young firms

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  • Fryges, Helmut
  • Kohn, Karsten
  • Ullrich, Katrin

Abstract

We investigate the interdependence of debt financing and R&D activities of young firms. Using micro-level data of the KfW/ZEW Start-up Panel, our estimation results show that firm characteristics are more important than personal characteristics of the founders for explaining young firms' leverage, whereas firm characteristics and human capital of both founders and employees heavily influence R&D intensity. Applying a bivariate Tobit model, we find that there is a positive interdependent relationship between the share of loan financing and R&D intensity. A higher share of loan financing allows for more R&D in young firms and, at the same time, a higher R&D intensity allows for a higher loan share. This relationship cannot be detected by merely estimating single-equation models for R&D intensity and debt financing.

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  • Fryges, Helmut & Kohn, Karsten & Ullrich, Katrin, 2012. "The interdependence of R&D activity and debt financing of young firms," ZEW Discussion Papers 12-016, ZEW - Leibniz Centre for European Economic Research.
    • Handle: RePEc:zbw:zewdip:12016
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    Cited by:

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    2. Brigitte Eierle & Simone Wencki, 2016. "The determinants of capitalising development costs in private companies: evidence from Germany," Journal of Business Economics, Springer, vol. 86(3), pages 259-300, April.

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    More about this item

    Keywords

    innovation financing; capital structure; start-ups; KfW/ZEW Start-up Panel; Germany;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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