The impact of financial flexibility and directors’ academic experience on corporate R&D investments: a quantile regression approach

ABSTRACT

This study investigates the impact of financial flexibility and academic experience of a firm’s board on corporate R&D investments in China. It also explores the moderating role of directors’ academic experience on the relationship between financial flexibility and R&D investments. We apply ordinary least square, fixed effects and quantile regression analysis using panel data of 2,195 A-share firms listed on Shanghai and Shenzhen stock exchanges during the period from 2011 to 2018. We find that both financial flexibility and directors’ academic experience promote R&D investments of Chinese non-financial firms. We also observe that directors’ academic experience weakens the positive impact of financial flexibility on R&D investments for firms operating in underdeveloped financial regions, whereas it strengthens the positive impact of financial flexibility on R&D investments for firms operating in developed financial regions. Our quantile regression results suggest that academic experience has a highly significant positive moderating impact on the financial flexibility of lower R&D investment firms relative to high R&D investment firms. These results are robust to alternate proxy of financial flexibility and endogeneity issues due to reverse causality.

KEYWORDS:

• Directors’ academic experience
• financial flexibility
• R&D investments
• panel data
• China

JEL CLASSIFICATION:

• C23
• G30

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ http://english.www.gov.cn/19thcpccongress

² http://chinainnovationfunding.eu/statistical-bulletin-on-national-economic-and-social-development-in-2018

³ B-shares are quoted in foreign currencies such as Hong Kong (HKD) and US Dollar (USD.)

⁴ H-shares are subject to the Hong Kong Stock Exchange’s listing requirements.

⁵ Special Treatment Class companies are those companies, which are encountering financial troubles or other unusual difficulties in the Chinese stock market.