R&D intensity and intangible assets effect on capital structure : an empirical analysis of the it services industry
Abstract
In the 21st century, firms aim to meet consumer preferences in an absurdly rapid manner with
new technological products and solutions. Innovation from R&D investments has become
increasingly important to meeting this demand. Furthermore, as more firms become
technology-minded, intangible assets constitute growing parts of their total assets. In this thesis,
we analyse the effect of these increasingly important factors (i.e., R&D intensity and intangible
assets) on capital structure for the IT services industry.
In addition to analysing intangible assets and the R&D intensity effect, we also investigate the
impact of macroeconomic factors on capital structure. We include commonly known
determinants of capital structure as control variables in a panel data regression to a sample of
808 globally listed IT services firms. Country-specific R&D tax subsidy rates work as a natural
experiment, and we utilize this in a two-stage least squares (2SLS) estimation to establish a
causal relationship between R&D intensity and debt and equity issuance. The results are
analysed in light of theories and empirical studies related to capital structure.
Our findings suggest that IT services firms tend to have lower leverage ratios than other
industrial companies from G7 countries, and that the standard determinants of capital structure
have the same effect on leverage that previous studies have indicated. By including
macroeconomic factors, we observe a countercyclical debt ratio among IT services firms.
Regarding intangible assets, we find a positive relationship to leverage ratio, debt and equity.
This relationship implies that creditors view such assets as collateral, thus supporting a higher
leverage ratio. We document that firms with high R&D intensity tend to issue more equity and
less debt, thereby lowering their overall leverage ratio. However, the results are not robust for
firm-fixed effects, and we cannot fully conclude that R&D intensity and intangible assets effect
debt or if they are part of determining the capital structure of listed IT services firms.