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

41 Pages Posted: 7 Dec 2017 Last revised: 7 Jun 2022

Date Written: June 1, 2022

Abstract

I provide empirical evidence that firms use credit lines to support investment opportunities that are available in good times, consistent with Lins, Servaes, and Tufano's (2010) 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.

Keywords: Credit lines, patents, capital expenditure, investment opportunities

JEL Classification: G30, G32

Suggested Citation

Lee, Jiyoon, Do firms use credit lines to support investment opportunities?: Evidence from success in R&D (June 1, 2022). Available at SSRN: https://ssrn.com/abstract=3084218 or http://dx.doi.org/10.2139/ssrn.3084218

Jiyoon Lee (Contact Author)

Yonsei University ( email )

Seoul
Korea, Republic of (South Korea)

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