Does corporate R&D investment support to decrease of default probability of Asian firms?

This paper examines the nature of the relationship between corporate R&D investment and the probability of default. Existing evidence on the topic is varied and often conflicting due to its complexity. In 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 Tiger's countries (Hong Kong, Singapore, South Korea and Taiwan) for the period from 2012 to 2017. Results of the research reveal a U-shaped relationship between corporate R&D investment and default probability. Considering the relationship more precisely, we divide the sample into two parts based on the availability of financial resources, and test the significance of this factor. R&D investment is found to significantly decrease default probability for financially constrained firms. We also examine the investment efficiency factor by comparing R&D investment and default probability between underinvesting and overinvesting firms. The rise of R&D investment decreases default probability for underinvesting firms, and increases – for overinvesting ones. Studying separately high-tech firms, we reveal that R&D investment leads to decrease of default probability.