The Impact of Using Short-term Lending for Long-term Investment on Firms' Investment in Innovation

Abstract

The prerequisite to ensure the smooth implementation of corporate innovation activities is the availability of sufficient funds. As a form of investment and financing, using short-term lending for long-term investment can provide financial support and relieve financing constraints, but it increases debt repayment pressure and the risk of sustained business operations. Existing literature on the impact of using short-term lending for long-term investment on corporate innovation activities is not yet conclusive. Based on the panel data of Chinese A-share listed companies from 2010 to 2021, this paper empirically tests the impact of using short-term lending for long-term investment on innovation investment by using fixed effects model and mediation effects model. The results show that using short-term lending for long-term investment has a significant inhibitory effect on innovation investment, and financial distress plays a mediating effect, i.e., using short-term lending for long-term investment will increase the risk of financial distress, and then inhibit corporate innovation investment. Heterogeneity tests show that the above results mainly exist in non-Big 4 audited enterprises, non-state-owned enterprises and enterprises located in regions with high quality economic resources. The relevant authorities should strengthen the market financing environment and formulate differentiated policies to encourage enterprises to invest in innovative activities. Enterprises should fulfil their social responsibilities, abide by professional ethics, enhance their independent R&D capabilities and break through technological barriers. Banks and other financial institutions should assess the solvency of enterprises before signing contracts.