The Change in Corporate Rating Standard on R&D Expenditures in Recent Periods
42 Pages Posted: 26 Jul 2017 Last revised: 7 Feb 2019
Date Written: February 5, 2019
This study contains exploratory examination on the change in the relation between corporate credit ratings and R&D expenses. Using U.S. firms with a credit rating from 1987 to 2013, we find that the negative relation between credit ratings and R&D expenditures in early periods has become weaker over time. The positive association between R&D expenditure and future performance is decreasing in recent periods, discarding the potential explanation on our finding that better R&D profitability would induce rating agencies to assess R&D expenditures more positively. This finding is also not explained by the change in sample composition and the recognition of intangible assets.
Keywords: Corporate Credit Rating, Research and Development, Innovation, Knowledge Industry
JEL Classification: G24, M41
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