Research & Development and Capital Structure: A simultaneous approach
Adelino Fortunato, Fernando Paulo Belfo
Conference Paper in Proceedings of the XV Jornadas de Economia Industrial. September 22, 1999
One of the stylised facts about financing R&D is that firms pursuing highly innovative investment policies tend to use less debt in their capital structures. We think that such an idea supports the intent to examine investment policy decision and capital structure choice as endogenous. The paper uses a 3SLS method to estimate a simultaneous model of capital structure and investment policy and R&D outlays are treated as a proxy of investment policy. Results give evidence on the predicted relationship between R&D and capital structure when we use a measure of short term debt but the same is not true with a long term measure of indebtedness.