Capital Structure、R&D And Firm Performance

R&D activities are self-evident importance in enterprise development. ThroughR&D investment in technology can enable enterprises to gain advantage andenterprises can also effectively reduce the cost of existing products or introducingmore competitive new products to meet market demands，obtaining greater economicbenefits. However， R&D investment has its particularity as relative to otherinvestments such as fixed asset investment， which makes the R&D investment of theprincipal-agent problem is particularly evident. Therefore research of R&D andCorporate Performance is meaningful. In considering the agency costs, capitalstructure is a critical variable. Theoretical analysis shows that the capital structure willaffect the relationship between R&D spending and corporate performance. Thepurpose of this paper is threefold:1) to explore the relationship between R&Dspending and corporate performance;2) to explore the relationship between capitalstructure and corporate performance as an explanatory variable instead of the controlvariable using in the usual study；3) To examine R&D spending and corporateperformance relationships under the affect with the company’s capital structure.We use samples of Chinese Listed Companies that have typical R&Dexpenditures， with correlation analysis， multiple regression analysis， the panelthreshold model， the theoretical analysis， to investigate the empirical basis ofcorporate capital structure， R&D and corporate performance. Preliminary empiricalresults show that corporate R&D spending on business performance has a significantpositive effect; with capital structure and performance of the enterprise there is asignificant inverted "U" relationship; when the capital structure and R&D crossmultiply items added to the regression model, we found that the coefficient is positive,not significant statistically, indicating that the capital structure will affect therelationship between the corporate R&D spending and corporate performance, and theimpact direction is uncertain. The results imply that the impact of capital structure onR&D and corporate performance may not be a simple linear relationship.Further analysis showed that R&D expenses for the company’s futureperformance presents a threshold effect in companies with different capital structure.In detail，when the capital structure of the company is less than0.466， the corporateR&D investment and the company’s future performance (Tobin’s Q) has a significantpositive effect， due to the enterprise use its own funds to support R&D investment，leading to the smaller agency costs， R&D investment is easily accepted by themarket recognition; When capital structure is between0.466and0.651， this changeresults R&D expenditures of enterprises on corporate performance from positive tonegative， the rising capital structure means the enterprise need to rely on part ofexternal funding to support R&D investment. With companies increasing in agencycosts，R&D investment is not so easily recognized by the market; When capitalstructure is more than0.651，the R&D investment in the company’s performance issignificantly negative, and the impact of a sharp increase. At this capital structure, the enterprise will entirely support R&D investment in debt，resulting a sharp increase inagency costs. Further studies showed that this effect on the performance of privateenterprises is higher than the state-owned enterprises.Based on the conclusions of this study, this paper proposes policyrecommendations1) the establishment of Government Innovation Fund.2) the use ofcapital market financing for R&D investment in order to reduce the negative impactof the liability structure.3) increase innovation policy and funding support for privateenterprise.