Debt, Innovation, and Growth

Thomas Geelen, Jakub Hajda, Erwan Morellec

Research output: Contribution to conferencePaperResearchpeer-review

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 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 date2020
Number of pages58
Publication statusPublished - 2020
EventThe 80th Annual Meeting of American Finance Association. AFA 2020 - San Diego, United States
Duration: 3 Jan 20205 Jan 2020
Conference number: 80
https://afajof.org/annual-meeting/

Conference

ConferenceThe 80th Annual Meeting of American Finance Association. AFA 2020
Number80
CountryUnited States
CitySan Diego
Period03/01/202005/01/2020
Internet address

Cite this

Geelen, T., Hajda, J., & Morellec, E. (2020). Debt, Innovation, and Growth. Paper presented at The 80th Annual Meeting of American Finance Association. AFA 2020, San Diego, United States. https://editorialexpress.com/cgi-bin/conference/download.cgi?db_name=AFA2020&paper_id=593