The Impact Of Capital Structure On R&D Investment Of GEM Listed Companies

As economic globalization is proceeding and international competition is increasingly fierce, the improvement of technological level and capacity for independent innovation become a core issue that companies face. Research and development (R&D) is indispensable for scientific and technological innovation. R&D investment is affected by many factors, among which capital structure is an important one. This paper studies the relationship between capital structure and R&D investment. Since China’s Growth Enterprises Market officially launched on October23,2009there has been over280companies listed, mostly high-tech enterprises belonging to the seven national strategic emerging industries. The launch of the GEM will promote the development of high-tech enterprises and improve the structure of China’s capital market. This paper makes theoretical and empirical analysis on the relationship of capital structure and R&D investment based on the sample of160companies listed on GEM at the end of2010.With theoretical and empirical analysis this paper draws the following conclusion:there exists a significant negative correlation between the capital structure and R&D intensity:equity financing will promote R&D investment. R&D intensity is negatively correlated with enterprise size and positively correlated with profitability. However, R&D intensity is not related to the growth rate of the company. In addition, capital structure affects R&D investment not only for the year, but also the year after. Therefore, China’s GEM as an important channel of equity financing is meaningful in promoting R&D investment of high-tech enterprises and improving scientific and technological innovation. Finally, this paper raises several recommendations for GEM and high-tech enterprises on increasing R&D investment.