Can Corporate Debt Foster Innovation and Growth?

Thomas Geelen, Jakub Hajda, Erwan Morellec*

*Corresponding author af dette arbejde

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Recent empirical studies have shown that innovative firms heavily rely on debt financing. Debt overhang implies that debt hampers innovation by incumbents. A second effect of debt is that it stimulates innovation by entrants. Using a Schumpeterian growth model with endogenous R&D and financing choices, we demonstrate that this second effect always dominates, so that debt fosters innovation and growth at the aggregate level. Our analysis suggests that the relation between debt and investment is more complex than previously acknowledged and highlights potential limitations of empirical work that solely focuses on incumbents when measuring the effects of debt on investment.
TidsskriftReview of Financial Studies
Udgave nummer9
Sider (fra-til)4152-4200
Antal sider49
StatusUdgivet - sep. 2022

Bibliografisk note

Published online: 1 December 2021.