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: Suggested Citation