How is Moral Hazard Related to Financing R&D and Innovations?

31 Pages Posted: 13 Jan 2014

See all articles by Özgür Arslan-Ayaydin

Özgür Arslan-Ayaydin

University of Illinois at Chicago - Department of Finance

Darold T. Barnum

University of Illinois at Chicago

Mehmet Baha Karan

Hacettepe University - Department of Business Administration

Atilla Ozdemir

Abdullah Gul University; Technology Development Foundation of Turkey

Date Written: January 11, 2014

Abstract

The aim of this study is to investigate how moral hazard arises during financing R&D and technological innovation activities of firms through their corporate governance attributes and firm-specific characteristics. We study 106 firms that received a specially designed loan by a Turkish government to be invested only in R&D and technological innovations. We find that as the size of the loan increases firms are less prone to moral hazard. For family firms our results support the agency theory. For large shareholders, initially our results are aligned with the agency theory but after controlling for the loan size our results hold for the stewardship theory. Finally we find that as amount of the loans increases relative to size of firms, the performance of projects financed by these loans plummets. Finally, we show that moral hazard related to R&D and innovation activities varies across industries.

Keywords: innovations, R&D, moral hazard, corporate governance, agency theory, stewardship theory

JEL Classification: G14, G20

Suggested Citation

Arslan-Ayaydin, Özgür and Barnum, Darold T. and Karan, Mehmet Baha and Ozdemir, Atilla, How is Moral Hazard Related to Financing R&D and Innovations? (January 11, 2014). Available at SSRN: https://ssrn.com/abstract=2377788 or http://dx.doi.org/10.2139/ssrn.2377788

Özgür Arslan-Ayaydin (Contact Author)

University of Illinois at Chicago - Department of Finance ( email )

2431 University Hall (UH)
601 S. Morgan Street
Chicago, IL 60607-7124
United States

Darold T. Barnum

University of Illinois at Chicago ( email )

1200 W Harrison St
Chicago, IL 60607
United States

Mehmet Baha Karan

Hacettepe University - Department of Business Administration ( email )

Beytepe Campus
Ankara, 16800
Turkey
+903122978700 (Phone)

Atilla Ozdemir

Abdullah Gul University ( email )

Kayseri
Turkey

Technology Development Foundation of Turkey ( email )

Cyberplaza
B-Blok Kat:5-6
Ankara, 06800
Turkey

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
200
Abstract Views
2,105
Rank
274,719
PlumX Metrics