(An) empirical analysis of the relationship between innovation activities and credit ratings in korean firms

Abstract

For years the academic community placed great emphasis on studying the relationship between innovation and economic return. The market value model has been a popular way of measuring the value of innovation activities, however there are criticisms of its being too focused on the shareholders’ perspective and overestimated. Credit rating is suggested as a measure for value. The main research questions of this study are: - Is innovation significant in determining credit rating? - What is the relationship between R&D, patents and patent growth to credit rating? - What are the moderating effects of firm size on credit rating? This study examines the relationship between a firm’s innovation activities and credit rating. The innovation activities include R&D intensity, patent growth and cumulative number of patents. This study also examines the effects of firm size and industry, and how these variables affect the relationship between innovation activities and credit rating. Through hypothesis testing by using the regression model, the results indicate that R&D intensity has a negative linear relationship to credit ratings; patents have a positive and linear relationship and patent growth may or may not have a relationship to credit ratings, depending on the industry. The study establishes innovation activities are implicitly expressed in credit ratings.