Corporate Innovation and Maturity Structure of Debt

Based on the theories related to the under-investment problems and information asymmetry, we hypothesize that the more active a firm is in innovation, the greater its use of short-term debt. To test this hypothesis, we use patents as a proxy for the outcome of successful innovative investments and examine the relationship between patents and the maturity structure of debt. We find that, as predicted, more innovative firms rely more on short-term debt than less innovative firms do. Our results suggest that providing easier access to short-term debt markets is more important than improving access to long-term debt markets in terms of promoting innovation.