How do ownership and debt affect R&D investments in privatized firms? Evidence from the emerging economy of China.

摘要

The effect of the privatization of publicly-traded firms (or leveraged buyouts) on innovation projects such as R&D has been the subject of much debate. On the one hand, private ownership is likely to motivate owner-managers to invest in R&D projects; on the other, a high level of debt financing would damage firms' financial flexibility due to debt payments, thus reducing firms' capability for R&D investments. Earlier studies demonstrated the negative relationship between buyouts and R&D investments, but recent research suggests buyouts may facilitate innovation such as R&D. This study attempts to untangle some controversies about R&D activities in privatized firms by extending the work on privatization of public firms in the West to formerly state-owned enterprises in China.;Specifically, I examine the effect of private ownership and firm debt on R&D investments in Chinese privatized firms. I argue that private ownership and firm debt may affect R&D investments both directly and indirectly. Private ownership could increase R&D investments because of its strong motivational effect and its link to effective governance structures for R&D activities. Debt would decrease R&D investments due to its financially constraining effect and its less likelihood as a financing tool for R&D investments. Given the risky nature of R&D investments, I also argue that private ownership and firm debt might affect R&D investments indirectly, mediated by risk perception. This indirect impact of private ownership and firm debt would help resolve some conflicting arguments and evidence. Data for testing hypotheses came from China and were obtained by survey. Two groups of industry were used: low and high R&D industries. The empirical results suggest that private ownership does not affect R&D investments directly or indirectly, but firm debt influences R&D investments both directly and indirectly. Risk perception was found to play an important role in managerial commitment to R&D projects in privatized firms. The findings of this study provide implications for academics, practitioners and policy makers in the field of privatization, which is an important corporate restructuring tool and has been used widely by both developed and developing economies.