Do firms use credit lines to support investment opportunities? Evidence from success in R&D

I provide empirical evidence that firms use credit lines to support investment opportunities that are available in good times, consistent with Lins et al., 2010’s survey findings. Employing patent grants as a proxy for R&D success, I find that innovative firms draw down credit lines to finance R&D success-driven capital expenditures. Credit-line drawdowns following R&D success are more pronounced in firms that depend heavily on external financing and incur large capital expenditures after R&D success. The results cannot be explained by credit-supply effects or time-varying state-level omitted variables. Overall, the results suggest that credit lines help firms take advantage of investment opportunities that are gained by R&D success.