Study On The Correlation Between The Investment Of Innovation And Default Risk

The enhancing dynamic and competition of business environment, customer demand, technology evolution, business interaction and cooperation between competitors and environment linkages and changes in market regulation, make companies fall into the whirlpool of uncertainty. In this increasingly dynamic environment, innovation is increasingly becoming the basic and key (Porter, 1990) of accumulating knowledge-capital and promoting scientific and technological progress, forming and upgrading the core competitiveness of enterprises. How to improve the ability of technological innovation has become a focus for the government, business and academia.Since Schumpeter (1943) began to study , many scholars actively explored that the firm size, market structure, industry characteristics, profitability, cash holdings, leverage, operating conditions, and entrepreneurship and so on how to influence Innovation performance .And they accumulated a large amount of literature. Most scholars agree that innovation has a positive impact on the development of enterprises, but there are still some scholars believe that too much innovation investment (Chan, 2001) and innovative business failure will bring great uncertainty. At this stage, most of the scholars of our country have stayed in the study of factors that can affect innovation output and the relationship between government policy and innovation input and output. At the same time, the choice of indicators of innovation also has some limitations. And now, the changing customer needs, competitive environment, growing uncertainty, increasing the risk of investments in innovation all make us pay more attention to the negative impact of innovation can bring to the company, especially the relationship between innovation and default risk.On the basis of previous studies, the paper attempts to research the measures of innovations and default risk. Then by making default risk as the dependent variable and making R&D intensity, innovation and performance, company size, systematic risk, asset-liability ratio, year and region as explanatory variables, we empirically analyze the impact of innovation performance and R&D influence on default risk.The object of this research is the listed companies of Yangtze River Delta region (including Shanghai City, Jiangsu Province, Zhejiang province) over a five year period from 2005 to 2009.And most of the data comes from CCER data base, in which there are 104 companies from Shanghai City,71 companies from Jiangsu Province and 66 companies from Zhejiang province.The research method of this paper is generally the multivariate regression analysis. The setting up of the model has three steps. Firstly, referencing to the research ideas of Vassalou and Apedjinou (2004) and Hongfu, An and Qizheng, Quan (2006) [, we find innovation performance evaluation model.Secondly, referencing to the research ideas of Merton (1974) and Hull (2003) , we get the probability of default risk model. Thirdly, referencing to the research of Yezun, Song and Hongfu, An (2007) and Bate, Kahle, Stulz (2009), we get the model of default risk in which firm size, asset-liability ratio, systematic risk, innovation performance, R&DI,R&DI2, Year and regional factors are all considered.According to the empirical analysis, we found that Lev, R&DI, enterprise scale, regional, age and R&DI2 are all the factors that can influence on the impact of default risk. And before and after the financial crisis, the degree and mechanism of influence are different. So, moderate innovation input can make the value of the enterprise increased and bring in profit growth, but excessive innovation input will make the default risk increased.The theoretical contribution of this paper has two aspects. On the one hand, we have made the R&D investment and innovation performance both as the innovation index; on the other hand, this paper mainly studies the risk of default that the innovation investment can bring to the enterprise. This paper also has practical significance. Because it can lead the enterprise to carry on the reasonable investment. At the same time, it can make the company be fully aware of the default risk that the excessive innovation behavior can bring in.