Corporate R&D Investment and Default Probability: Evidence from Asia

The paper examines the relationship between corporate R&D investment and default probability. Existing evidence on the topic is varied and often conflicting due to its complexity. At this paper, we investigated the non-linear relationship between R&D investment and the probability of default, and also detected several factors influencing the nature of the relationship. The research relies on the sample of Asian Tigers countries (Hong Kong, Singapore, South Korea and Taiwan) for the period from 2012 to 2017. Results of the research reveal U-shaped relationship between corporate R&D investment and default probability. Considering the relationship more precisely, R&D investment is found significant for decreasing of default probability for financially constrained firms and high technological firms. Rise of R&D investment also decreases default probability for underinvesting firms, and increases – for overinvesting ones. Market concentration, surprisingly, was found irrelevant for determination of default probability.