The Impact of Financing Structure on Innovation: Empirical Evidence from Chinese Firms

Selecting an appropriate financing structure is vital to support corporate R&D activities, which is crucial for firms competitive advantages. So how does financing structure affect innovation? This paper investigates the impact of external financing ratios on corporate R&D. The study finds that a high proportion of external financing suppresses R&D investment. Internal financing and equity financing significantly promote corporate R&D investment, whereas debt financing and government subsidies have a notable inhibitory effect. The presence of equity concentration and financing constraints weakens the suppressive impact of external financing on R&D investment. The inhibitory effect of external financing on R&D intensity is more pronounced in state-owned, small-scale, and traditional enterprises. This paper delves into the optimal financing structure for corporate innovation, providing new perspectives on the relationship between financing structures and corporate R&D, and offering empirical evidence to support the improvement of the equity financing market in the country.