R&D investment and SMEs performance: the role of capital structure decisions.

Purpose – This paper examines the moderating role of capital structure decisions in the relationship between research and development (R&D) investment and small and medium enterprises (SMEs) performance. Design/methodology/approach – Based on panel data of 1,357 European SMEs from 2014 to 2020, this study employs a generalized method of moments (GMM) regression to examine the R&D-performance link through the moderating role of capital structure. Findings – The results show that R&D investment and equity financing positively and significantly influence SMEs performance. Debt financing, however, is negatively and significantly associated with SME performance. In addition, we show that capital structure choice significantly moderates the relationship between R&D investment and SME performance. Specifically, debt financing attenuates the positive impact of R&D investment on SMEs performance, whereas equity financing accentuates this relationship. Practical implications – This study helps policymakers formulate appropriate policies to overcome the challenges of underinvestment in R&D projects to enhance SMEs performance. Originality/value – Our findings provide new evidence on R&D-performance literature by refining the deeper understanding of the role of capital structure, which has previously been examined in partial and fragmented ways.