LaBS research seminar: The nonlinear relationship between financial constraints and R&D investment: the mediating role of executive stock options (Sedki Zaiane, University of Sousse)

On Monday, February 26th LaBS welcomed Sedki Zaiane (University of Sousse), who presented his paper "The nonlinear relationship between financial constraints and R&D investment: the mediating role of executive stock options"

Video is available here.

Abstract
Purpose – The current study aims to investigate the mediating role of executive stock options in the nonlinear relationship between financial constraints and research and development (R&D) investment through two measures of financial constraints.
Design/methodology/approach – This study is based on a sample of 90 French firms for the period extending from 2008 to 2020. The authors employ a panel threshold method to analyze whether the impact of financial constraints on R&D investment depends on the level of financial constraints or not.
Findings – Using SA index (Hadlock and Pierce, 2010) and FCP index (Schauer et al., 2019) as measures of financial constraints, the authors demonstrate that the relationship between financial constraints and R&D investment is nonlinear. Moreover, the authors find that executive stock options mediate partially the relationship between financial constraints and R&D investment. More specifically, the authors show that stock options could play two roles depending on the level of the financial constraints; inconsistent mediation for firms with low/medium level of financial constraints and partial mediation for highly constrained firms.
Originality/value – This paper is the first to the best of the authors’ knowledge to investigate the nonlinear relationship between financial constraints and R&D investment as well as the mediating role of executive stock option using dynamic panel threshold models.

Full paper