Debt, Innovation, and Growth

Thomas Geelen, Jakub Hajda, Erwan Morellec

Research output: Contribution to conferencePaperResearch

Abstract

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
https://financetheory.org/ftg-events/4th-ftg-european-summer-meeting-madrid

Conference

Conference4th Finance Theory Group European Summer Meeting Madrid
Number4
LocationCEMFI
CountrySpain
CityMadrid
Period03/07/201904/07/2019
Internet address

Keywords

  • Debt
  • Innovation
  • Industry dynamics
  • Growth

Cite this

Geelen, T., Hajda, J., & Morellec, E. (2019). Debt, Innovation, and Growth. Paper presented at 4th Finance Theory Group European Summer Meeting Madrid, Madrid, Spain.
Geelen, Thomas ; Hajda, Jakub ; Morellec, Erwan. / Debt, Innovation, and Growth. Paper presented at 4th Finance Theory Group European Summer Meeting Madrid, Madrid, Spain.61 p.
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abstract = "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.",
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Geelen, T, Hajda, J & Morellec, E 2019, 'Debt, Innovation, and Growth' Paper presented at, Madrid, Spain, 03/07/2019 - 04/07/2019, .

Debt, Innovation, and Growth. / Geelen, Thomas; Hajda, Jakub; Morellec, Erwan.

2019. Paper presented at 4th Finance Theory Group European Summer Meeting Madrid, Madrid, Spain.

Research output: Contribution to conferencePaperResearch

TY - CONF

T1 - Debt, Innovation, and Growth

AU - Geelen, Thomas

AU - Hajda, Jakub

AU - Morellec, Erwan

PY - 2019

Y1 - 2019

N2 - 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.

AB - 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.

KW - Debt

KW - Innovation

KW - Industry dynamics

KW - Growth

KW - Debt

KW - Innovation

KW - Industry dynamics

KW - Growth

M3 - Paper

ER -

Geelen T, Hajda J, Morellec E. Debt, Innovation, and Growth. 2019. Paper presented at 4th Finance Theory Group European Summer Meeting Madrid, Madrid, Spain.