The Impact of Financing Constraints and Agency Costs on Corporate R&D Investment: Evidence from China

Abstract

This study investigates the association between financing constraints/agency problem (agency costs) and corporate R&D investment in China by using the two‐tier stochastic frontier model initially developed by Kumbhakar and Parmeter (2009) in light of the Euler equation analysis framework. The results show that there is a significantly negative association between financing constraints and firms' R&D investments and a significantly positive relationship between agency costs and R&D investments. Thus, financing constraints lead to R&D underinvestment, while agency costs cause R&D overinvestment by the sample firms. However, government subsidies have a positive moderating effect on the relationships. The impact of financing constraints and agency costs on R&D investment varies slightly by firms in different geographical regions, industries, business ownerships, and years.

Does a Board Chairman’s Political Connection Affect Green Investment?—From a Sustainable Perspective

“…The coefficient of size is positive and statistically significant at the 5% level, which suggests that larger firms tend to invest more in ECERI. When analyzing what affects the amount of R and D investment, Lin et al (2017) also have similar finding [54]. In addition, the coefficient of age is negative and statistically significant at the 5% level, which suggests that younger firms try to do more ECERI.…”

“…Additionally, we calculated the variance inflation factor (VIF) values of all variables and found that the largest one is 1.430. All these results suggest that the collinearity problem is not substantial in this paper [54]. Notes: * p < 0.10, ** p < 0.05, *** p < 0.01.…”

“…We also choose some control variables based on existing studies about R and D investment (such as in Reference [54]) since the decision of ECER investment is similar to that of R and D investment and there is little empirical research on ECERI. First, we control some variables about a firm's characteristics, including firm size (size), measured as the natural logarithm of total assets.…”

Corporate Governance Structure, Financial Capability, and the R&D Intensity in Chinese Sports Sector: Evidence from Listed Sports Companies

“…As R&D activities are generally long-term and high-risk, returns on their investment are unpredictable, and sometimes, their results are intangible capital without collateral function [19,20] and require business secrets and core technologies to remain undisclosed [21]. They may also quickly become obsolete, devaluing their potential returns [22].…”

“…An excessively large shareholding ratio of the first major shareholder has a negative effect on technological innovation and corporate performance [33,51]. The shareholding ratio of the first major shareholder is used to measure the degree of equity concentration [21,36]. The equity structure without effective supervising and balances could lead to one-sided decision-making, and it may even damage the interests of minority shareholders.…”