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

Jiyoon Lee

doi:10.1016/j.jempfin.2022.08.001

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

Jiyoon Lee

Department of Business Administration

Research output: Contribution to journal › Article › peer-review

Abstract

I provide empirical evidence that firms use credit lines to support investment opportunities that are available in good times, consistent with Lins et al., 2010’s 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.

Original language	English
Pages (from-to)	1-14
Number of pages	14
Journal	Journal of Empirical Finance
Volume	69
DOIs	https://doi.org/10.1016/j.jempfin.2022.08.001
Publication status	Published - 2022 Dec

Bibliographical note

Funding Information:
I thank Heitor Almeida, Meghana Ayyagari, Christa Bouwman, Murillo Campello, Anjan Thakor and seminar participants at the 2018 Financial Management Association (FMA) conference for valuable comments and suggestions. I also benefited from the excellent research assistance of Boxian Wang. All errors are my own. Part of this work was conducted at the George Washington University.

Publisher Copyright:
© 2022 Elsevier B.V.

All Science Journal Classification (ASJC) codes

Finance
Economics and Econometrics

Access to Document

10.1016/j.jempfin.2022.08.001

Cite this

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

abstract = "I provide empirical evidence that firms use credit lines to support investment opportunities that are available in good times, consistent with Lins et al., 2010{\textquoteright}s 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.",

author = "Jiyoon Lee",

note = "Funding Information: I thank Heitor Almeida, Meghana Ayyagari, Christa Bouwman, Murillo Campello, Anjan Thakor and seminar participants at the 2018 Financial Management Association (FMA) conference for valuable comments and suggestions. I also benefited from the excellent research assistance of Boxian Wang. All errors are my own. Part of this work was conducted at the George Washington University. Publisher Copyright: {\textcopyright} 2022 Elsevier B.V.",

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