Leverage Deviation from the Target Debt Ratio and Leasing
In: Accounting & Finance, Forthcoming
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In: Accounting & Finance, Forthcoming
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Working paper
In: The journal of financial research: the journal of the Southern Finance Association and the Southwestern Finance Association, Volume 43, Issue 4, p. 895-932
ISSN: 1475-6803
AbstractResearchers have argued that the uncertainty surrounding innovative activities causes firms to either underinvest or overinvest in research and development (R&D). We examine whether the information gained by boards through directors' connections helps mitigate such distortions. We find that an increase in directors' connections has an asymmetric impact on under‐ and overinvesting firms. R&D expenditures are shown to increase with board connections. Such increases in R&D intensity exacerbate the extent of overinvestment, resulting in a loss in future market‐to‐book value. The increase in R&D intensity, however, reduces underinvestment only among firms with higher than average R&D productivity. We find that increased director busyness is one cause of overinvestment.
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Working paper
In: Journal of Finance, Volume 79, Issue 3, June 2024, Pages 2339-2390.
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