The Interdependence of R&D Activity and Debt Financing of Young Firms

33 Pages Posted: 3 Mar 2012

See all articles by Helmut Fryges

Helmut Fryges

Technopolis Group; University of Tasmania - Australian Innovation Research Centre; Center for European Economic Research (ZEW)

Karsten Kohn

Kreditanstalt für Wiederaufbau (KfW), KfW Development Bank; IZA Institute of Labor Economics

Katrin Ullrich

Center for European Economic Research (ZEW)

Multiple version iconThere are 2 versions of this paper

Date Written: 2012

Abstract

We investigate the interdependence of debt financing and R&D activities of young firms. Using micro-level data of the KfW/ZEW Start-up Panel, our estimation results show that firm characteristics are more important than personal characteristics of the founders for explaining young firms’ leverage, whereas firm characteristics and human capital of both founders and employees heavily influence R&D intensity. Applying a bivariate Tobit model, we find that there is a positive interdependent relationship between the share of loan financing and R&D intensity. A higher share of loan financing allows for more R&D in young firms and, at the same time, a higher R&D intensity allows for a higher loan share. This relationship cannot be detected by merely estimating single-equation models for R&D intensity and debt financing.

Keywords: innovation financing, capital structure, start-ups, KfW/ZEW start-up panel, Germany

JEL Classification: G32, O32, L26

Suggested Citation

Fryges, Helmut and Kohn, Karsten and Ullrich, Katrin, The Interdependence of R&D Activity and Debt Financing of Young Firms (2012). ZEW - Centre for European Economic Research Discussion Paper No. 12-016, Available at SSRN: https://ssrn.com/abstract=2014710 or http://dx.doi.org/10.2139/ssrn.2014710

Helmut Fryges (Contact Author)

Technopolis Group ( email )

Grosse Seestraße 26
Frankfurt am Main, 60384
Germany

University of Tasmania - Australian Innovation Research Centre ( email )

1 College Road
Sandy Bay TAS, Tasmania 7005
Australia

HOME PAGE: http://www.utas.edu.au/airc

Center for European Economic Research (ZEW) ( email )

P.O. Box 10 34 43
L 7,1 D-68161 Mannheim
Germany

Karsten Kohn

Kreditanstalt für Wiederaufbau (KfW), KfW Development Bank ( email )

Palmengartenstr. 5-9
Frankfurt, 60325
Germany

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Katrin Ullrich

Center for European Economic Research (ZEW) ( email )

P.O. Box 10 34 43
L 7,1 D-68161 Mannheim
Germany

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