Corporate financing decisions : innovative versus non-innovative firms
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This thesis uses a sample of 807 ﬁrms listed on the London Stock Exchange over the period 1987-2013 to investigate the differences in ﬁnancing decisions, leverage adjustments and trade credit policies between innovative ﬁrms that report R&D and non-innovative ﬁrms that do not report R&D. This focus is motivated by the marked increase in intangible investments amongst ﬁrms in the UK, and the need to reexamine the overlooked interdependence of ﬁnancing and investment decisions. The empirical analyses in this thesis use a combination of ordinary least squares with ﬁxed effects (OLS FE thereon) and system Generalised Method of Moments (system GMM thereon) as the main estimation techniques. The results show that leverage is persistent, with innovative ﬁrms adopting similar ﬁnancing structures as noninnovative ﬁrms despite being supposedly constrained. Further, innovative ﬁrms consistently adjust their leverage towards a target faster than non-innovative ﬁrms. This result suggests that innovative ﬁrms are more active in managing their capital structure, perhaps because they face higher costs of deviating from target relative to non-innovative ﬁrms. The results also show that innovative and non-innovative ﬁrms have different credit policies,where the former give (use) more (less) trade credit than the latter. Finally, analyses of time variation in leverage and credit adjustments, which are largely overlooked in the literature, suggest that such variations are important in understanding corporate decisions. This is especially pertinent given the economic shift from predominantly manufacturing based sectors towards technology and service based sectors. Overall, the results show that investment type has a signiﬁcant effect on corporate decisions beyond the factors reported in the literature.