Debt, Innovation, and Growth

Thomas Geelen, Jakub Hajda, Erwan Morellec

Research output: Contribution to conferencePaperResearch


Recent empirical studies show that innovative firms heavily rely on debt financing. This paper investigates the relation between debt financing, innovation, and growth in a Schumpeterian growth model in which firms' dynamic R&D, investment, and financing choices are jointly and endogenously determined. The paper demonstrates that while debt hampers innovation by incumbents due to debt overhang, it also stimulates entry, thereby fostering innovation and growth at the aggregate level. The paper also shows that debt financing has large effects on firm entry, firm turnover, and industry structure and evolution. Lastly, it predicts substantial intra-industry variation in leverage and innovation, in line with the empirical evidence.
Original languageEnglish
Publication date2019
Number of pages61
Publication statusPublished - 2019
Event4th Finance Theory Group European Summer Meeting Madrid - CEMFI, Madrid, Spain
Duration: 3 Jul 20194 Jul 2019
Conference number: 4


Conference4th Finance Theory Group European Summer Meeting Madrid
Internet address


  • Debt
  • Innovation
  • Industry dynamics
  • Growth

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