Study on the Impact of R&D Intensity on Firm's Cost of Equity Capital from the Perspective Resource Dependence Theory

Abstract

Abstract:

Based on R&D data of small and medium-sized listed companies, this paper examines the relationship between R&D investment and the implied cost of equity capital. Further, this paper investigates whether director board size affects this relationship. The empirical results suggest:(1) R&D intensity is negatively related to cost of equity capital, suggesting that R&D investment could reduce the cost of equity finance; (2) the greater the size of the board is, the more significant the relation between R&D intensity and cost of equity capital will be. This result holds constant under different board dependence and board meeting intensity. Combined with Chinese institutional background, these results support the "resource dependence theory" of board size; (3) After controlling the sample selection bias by using the Heckman two-stage method and mitigating the endogeneity problem by using IV-2SLS, above conclusions do not change. These findings not only enrich the academic literature on economic consequences of R&D and provide empirical evidence on determinants of implied cost of equity capital, but also provide supporting evidence on less studied "resource dependence theory" of director board.

Key words: R&D, cost of equity capital, board governance, resource dependence theory

Wang Liangliang, Pan Jun, Lin Shu. Study on the Impact of R&D Intensity on Firm's Cost of Equity Capital from the Perspective Resource Dependence Theory[J]. , 2018, 30(7): 52-63.

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