The Impact of R&D Investments on The Capital Structure of Swedish Public Life Science Companies

Detta är en Kandidat-uppsats från Uppsala universitet/Företagsekonomiska institutionen; Uppsala universitet/Företagsekonomiska institutionen

Författare: Maitham Ridha; Daniel Bajka; [2010]

Nyckelord: ;


Background Although the impact of R&D investments on firms’ capital structures has been the subject of extensive research, the “capital structure puzzle” still remains unsolved. Previous research is not entirely unanimous on this subject. While some studies indicate that R&D intensive firms are less levered, other studies depict the opposite.

Aim This study aims to investigate the impact of R&D investments on the capital structure of firms in the Swedish life science industry. The life science industry is especially of interest as it is characterized by fast decisions regarding the success or failure of clinical trials, approval of products by the authorities and the development of pipeline products. Such factors contribute to a fast-paced environment in which investment decisions must be made cautiously.

Methods A comparative case study analysis is conducted on five publicly listed life science companies, Meda, Q-Med, BioPhausia, Vitrolife and Biotage, trading on the Nordic OMX Stockholm Stock Exchange. Each company’s financial performance and position have been considered and analyzed during the period 2005-2009. Financial ratios relating to the R&D intensity and the capital structure of the firms have been selected in addition to other determining factors; company size, profitability, asset tangibility, non-debt tax shield, growth, income variability and dividend policy. Moreover, key informants, including CEOs/CFOs of some of the firms involved, have scrutinized our results.

Results Meda and BioPhausia were found to be the least R&D intensive firms in the sample with R&D intensities of 3 % and 1 % respectively and the highest levered with debt levels (total debt over total capital) of 53 % and 50 % respectively. Q-Med, Vitrolife and Biotage were the most R&D intensive with 19 %, 14 % and 10 % of their sales reinvested in research and development and the least levered with debt levels of 5 %, 7 % and 8 % respectively.

Conclusions Our findings show a negative relationship between the analyzed firms’ R&D intensity and their leverage level. Moreover, the three most R&D intensive firms displayed a reduction in leverage with increasing R&D intensity.

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