The Interdependence of R&D Activity andDebt Financing of Young Firms

We investigate the interdependence of debt financing and R&D activities of young firms.Using micro-level data of the KfW/ZEW Start-up Panel, our estimation results show that firmcharacteristics are more important than personal characteristics of the founders for explainingyoung firms’ leverage, whereas firm characteristics and human capital of both founders andemployees heavily influence R&D intensity. Applying a bivariate Tobit model, we find thatthere is a positive interdependent relationship between the share of loan financing and R&Dintensity. A higher share of loan financing allows for more R&D in young firms and, at thesame time, a higher R&D intensity allows for a higher loan share. This relationship cannot bedetected by merely estimating single-equation models for R&D intensity and debt financing...