Growth Opportunities, Knowledge Capital, and Leverage: Evidence from Us Biotech Firms

39 Pages Posted: 27 Dec 2000

See all articles by Qiao Liu

Qiao Liu

The University of Hong Kong - School of Economics and Finance; Peking University - Guanghua School of Management

Date Written: November 4, 2000

Abstract

This paper investigates the interaction among a firm's knowledge capital, growth opportunities, earning dynamics, and optimal leverage level. Under the corporate taxation and personal taxation framework, by assuming that knowledge capital positively affects the realization of a firm's growth opportunities, I find a positive relation between a firm's optimal debt level and its knowledge capital. Meanwhile, I identify a negative relation between R&D expenditures and leverage in the presence of better measures for a firm's knowledge capital. By using the data collected for US biotech firms, I find that firms' debt ratios are indeed positively related to their knowledge capital measures: citation-weighted patent counts or claim-weighted patent counts. Furthermore, by empolying an event study approach, I find a firm tends to increase its leverage ratio after the enhancement of its knowledge capital.

JEL Classification: G32, G12, O31, M40

Suggested Citation

Liu, Qiao, Growth Opportunities, Knowledge Capital, and Leverage: Evidence from Us Biotech Firms (November 4, 2000). Available at SSRN: https://ssrn.com/abstract=248908 or http://dx.doi.org/10.2139/ssrn.248908

Qiao Liu (Contact Author)

The University of Hong Kong - School of Economics and Finance ( email )

School of Economics and Finance
Pokfulam
Hong Kong
Hong Kong
852-2859-1059 (Phone)
852-2548-1152 (Fax)

Peking University - Guanghua School of Management ( email )

Peking University
Beijing, Beijing 100871
China

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