The nexus of debt financing and corporate innovation by exploring market competition’s moderating and enterprise maturity’s influential role: evidence from China

ABSTRACT

The study investigates the association between debt financing and corporate innovation in Chinese listed firms from 2007–2017. It also examines the interplay of market competition and enterprise maturity in this nexus. Debt financing represents all transactional credits, and innovation is measured using R&D expenditures and patent counts. The fixed-effect negative binomial regression and a two-step system GMM are applied for empirical estimates. The findings validate that debt has an inverted U-Shaped impact on enterprise innovation. The break-even points representing the optimum debt undertaking are evaluated, higher in patent than R&D activities. The results validate that market competition moderates and enterprise maturity influences high-tech firms’ debt undertaking. High-tech firms uphold a lower break-even point in a competitive environment that represents restraining the takeover risk costs associated with creditors’ complex restrictions. The influence of enterprise maturity elevates the optimum debt ratio, exhibiting business history’s financial edge in innovative activities. Managers should refine debt policies by restoring the relationship with creditors so that high-tech firms can elevate the optimum usage of debt. In economies that focus on radical growth, effective monetary stimulation policies are crucial to achieving technology leadership, especially for mature firms and in a competitive environment.

KEYWORDS:

• Corporate innovation
• debt financing
• enterprise maturity
• market competition
• technology investment
• R&D activities

JEL Codes:

• G30
• G32
• O16
• O31

Disclosure statement

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

Notes

1. TRIPS represents the covenant on trade-related aspects of intellectual property rights (or TRIPs agreement) to establish intellectual property rights (IPRs) standards. It is an international legal agreement between all the member nations of the world trade organisation (WTO); China has been a member since 2001. TRIPS-plus standards implement bilateral trade covenants initiated by rich countries; the term indicates that the standards go beyond the minimum obligations imposed under TRIPs (Shahzad et al., 2021b).

2. Monopolist’s financial benefits are in the status quo because the incentives to innovate will decrease pre-invention profits. S

3. Please visit https://cn.gtadata.com/