Journal of Corporate Finance Vol. 79 2023
Innovation Success and Capital Structure
Abstract
This paper analyzes the relationship between firms’ innovation success and their capital structures. I hypothesize that firms’ innovation success reduces the extent of information asymmetry facing them in the equity market, leading to a greater propensity of firms to issue equity rather than debt to raise external financing. Supporting these hypotheses, I show empirically that firms with higher levels of innovation success have lower leverage ratios and a greater propensity to issue equity rather than debt. Further, these firms face a lower extent of information asymmetry in the equity market. I establish causality using instrumental variable analyses, instrumenting for patent grants with patent examiner leniency.
- DOI
- 10.1016/j.jcorpfin.2022.102345
- Volume
- 79
- Pages
- 102345
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref