Technology and Financial Structure: Are Innovative Firms Different?

We use data on publicly traded UK firms to investigate whether financing choices differ systematically with R&D intensity. As well as looking at a balance sheet measure of the debt/assets ratio, we also consider the probability of raising finance by issuing new equity, and the shares of bank debt and secured debt in total debt. We find a non-linear relationship with the debt/assets ratio: firms that report positive but low R&D use more debt finance than firms that report no R&D, but the use of debt finance falls with R&D intensity among those firms that report R&D. We find a simpler relationship with the probability of issuing new equity: firms that report R&D are more likely to raise funds by issuing shares than firms that report no R&D, and this probability increases with R&D intensity. The shares of bank debt and secured debt in total debt are both lower for firms that report R&D compared to those that do not, and tend to fall as R&D intensity rises. We discuss possible explanations for these patterns. Acknowledgment: We thank the ESRC Centre for Public Policy at IFS for financial support, and Daron Acemoglu, Rachel Griffith, Josh Lerner and Fabrizio Zilibotti for very helpful comments.