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Most traditional studies of R&D do not consider that the use of leverage to finance R&D may affect total R&D expenditures in a patent race. We show that debt acts as a commitment to a smaller amount of total R&D spending (debt+equity) than would occur if firms were entirely equity financed. A commitment to lower R&D expenditure can be strategically beneficial; under a flow-cost model, debt induces lower R&D expenditure from its rival and thus increases its expected profit. Firms in this case are partially debt-financed in equilibrium. In a fixed cost model, debt has no strategic value in a symmetric equilibrium. In this case debt induces higher R&D expenditure from its rival and thus decreases its expected profit. Firms in this case use no strategic debt, and may in fact use "negative" strategic debt; that is, in a more general model where debt has other uses, the total debt level is reduced when the strategic effect is included. Our empirical study gives support to the fixed, up-front R&D result that higher debt levels are associated with lower overall R&D expenditures.JEL classifications: L0, L1, L6, G3

Using a theoretical model of university technology transfer and licensing survey data from 1991 to 2013, we show that greater faculty quality and venture capital availability is positively associated with licenses to startups. We employ a two-stage game of licensing terms (royalty rate and fixed fee) and development efforts to show that under reasonable conditions, licensing to a startup rather than an established firm will be more attractive to a technology transfer office (TTO) because the inventor's ownership share in a startup firm will increase total development efforts by the inventor and licensee. TTOs will be more likely to target startup licensees when the marginal effect of the faculty inventor's additional development effort on the probability of success is large relative to that of the venture capitalist or established firm. Empirical evidence supports the results of the model; using Associated University Technology Data licensing survey data and employing panel and cross-sectional analyses, we show that an increase in the quality of engineering faculty has roughly twice the positive impact on startup licenses than on established firm licenses. Startup licensing is also strongly impacted by venture capital availability within institutions over time. (JEL L24, L26, D86) * Many thanks to Arvids Ziedonis, Jerry and Marie Thursby, and the participants of the Roundtable for Engineering Entrepreneurship Research and Technology Transfer Society meetings for helpful comments.

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