{"title":"Capital structure decisions and R&D investment: The contingency role of firm size","authors":"Sarmad Ali, Adalberto Rangone, Hussain Muhammad","doi":"10.1177/03063070241284895","DOIUrl":null,"url":null,"abstract":"This paper explores how the size of a firm influences the relationship between capital structure choices and research and development (R&D) investment. By analyzing data from publicly listed U.S. pharmaceutical firms between 2011 and 2020 and using an instrumental variables regression, we present evidence that the impact of capital structure on R&D investment varies depending on firm size. Our findings show that firm size plays a critical role in shaping financing decisions to support R&D. Specifically, large and small firms employ different strategies for developing and implementing R&D projects. Our results reveal that R&D investment is negatively (positively) and significantly associated with debt financing (equity financing). Moreover, we show that firm size attenuates the adverse effect of debt financing on R&D investment and accentuates the positive effect of equity financing. Our study provides a refined distinction between debt and equity financing and clarifies the importance of structural characteristics in explaining a firm’s R&D investment decisions. Our study assists policymakers and practitioners in designing effective policies to enhance the understanding of the complex relationship between capital structure decisions and R&D investment.","PeriodicalId":46142,"journal":{"name":"JOURNAL OF GENERAL MANAGEMENT","volume":null,"pages":null},"PeriodicalIF":1.2000,"publicationDate":"2024-09-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"JOURNAL OF GENERAL MANAGEMENT","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.1177/03063070241284895","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q4","JCRName":"MANAGEMENT","Score":null,"Total":0}
引用次数: 0
Abstract
This paper explores how the size of a firm influences the relationship between capital structure choices and research and development (R&D) investment. By analyzing data from publicly listed U.S. pharmaceutical firms between 2011 and 2020 and using an instrumental variables regression, we present evidence that the impact of capital structure on R&D investment varies depending on firm size. Our findings show that firm size plays a critical role in shaping financing decisions to support R&D. Specifically, large and small firms employ different strategies for developing and implementing R&D projects. Our results reveal that R&D investment is negatively (positively) and significantly associated with debt financing (equity financing). Moreover, we show that firm size attenuates the adverse effect of debt financing on R&D investment and accentuates the positive effect of equity financing. Our study provides a refined distinction between debt and equity financing and clarifies the importance of structural characteristics in explaining a firm’s R&D investment decisions. Our study assists policymakers and practitioners in designing effective policies to enhance the understanding of the complex relationship between capital structure decisions and R&D investment.
期刊介绍:
Journal of General Management is quarterly peer reviewed journal, with a mission to provide thought leadership by publishing articles on managerial practices with organisation-wide or cross-functional implications. We seek original theoretical and practical insights into general management in all types of organisations.