Motives for forming research & development financing organizations

Motives for forming research & development financing organizations We study the decision to fund R&D through a separate financing organization (an ‘RDFO’) that takes the form of either a limited partnership or a corporation. The RDFO offers tax and financial reporting benefits. As a form of external funding, it also creates moral hazard and adverse selection problems (information costs). Using convertible debt as a comparative form of external funding, we find that debt-related (but not equity-related) financial reporting benefits affect the decision to form RDFOs, the evidence is mixed on whether taxes influence the formation decision, and the information costs of RDFOs restrict their use. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Accounting and Economics Elsevier

Motives for forming research & development financing organizations

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Publisher
Elsevier
Copyright
Copyright © 1995 Elsevier Ltd
ISSN
0165-4101
D.O.I.
10.1016/0165-4101(94)00390-Q
Publisher site
See Article on Publisher Site

Abstract

We study the decision to fund R&D through a separate financing organization (an ‘RDFO’) that takes the form of either a limited partnership or a corporation. The RDFO offers tax and financial reporting benefits. As a form of external funding, it also creates moral hazard and adverse selection problems (information costs). Using convertible debt as a comparative form of external funding, we find that debt-related (but not equity-related) financial reporting benefits affect the decision to form RDFOs, the evidence is mixed on whether taxes influence the formation decision, and the information costs of RDFOs restrict their use.

Journal

Journal of Accounting and EconomicsElsevier

Published: Mar 1, 1995

References

  • The case for convertibles
    Brennan, M.; Schwartz, E.
  • Informational asymmetries, financial structure, and financial intermediation
    Leland, H.E.; Pyle, D.H.

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