Capital Structure, Ownership Structure and R&D Investments : Evidence from Indian Firms

This study examines the relationship among capital structure, ownership structure and R&D investments for Indian firms. The results indicate a positive relationship between R&D intensity and leverage of a firm, implying that Indian firms with high leverage do undertake R&D investments. Contrary to the existing literature, no negative relationship between family ownership and R&D investments is found. There is a negative relationship between institutional ownership and R&D investments, suggesting that institutions have a myopic view and concentrate only on short-term performance of firms. A negative relationship between domestic institutional ownership and R&D investments is also observed, confirming the general belief that domestic financial institutions do not finance innovative firms. Finally, a positive relationship between foreign institutional ownership and R&D investments is found. This confirms that foreign institutional investors do promote R&D spending in Indian firms and that they are dynamic monitors who support firms with innovative ideas and promote exchange of innovative knowledge