Associate Professor Xin Xia , a researcher of the Base, has published a paper titled “Convertible debt and corporate R&D investment decisions” in Finance Research Letters.

Abstract: We develop a continuous-time finance model to investigate the impact of convertible debt on corporate research and development (R&D) investment decisions. Our model predicts that an increase in the ratio of convertible debt to total debt induces firms to delay investment in R&D projects but encourages higher R&D investment intensity. Additionally, we demonstrate a U-shaped relationship between the probability of R&D termination and the convertible debt ratio. Finally, as the convertible debt ratio increases, the option value of R&D investment decreases, and the value of the firm at the time of R&D project initiation increases. These findings may yield novel practical implications for firms seeking to use convertible debt to promote innovation.

Keywords: Convertible debt; R&D investment; R&D termination; Innovation

Link: https://erj.ajcass.com/#/issue?id=122073&year=2025&issue=12

Author profile

Xin Xia is a Associate Professor at the School of Finance, Zhongnan University of Economics and Law, with a primary research focus on corporate finance. Over the past few years, he has published more than 10 papers as the first author or sole corresponding author in academic journals including Journal of Management Sciences, Chinese Journal of Management Science, Journal of Corporate Finance, International Review of Economics and Finance, North American Journal of Economics and Finance, Economic Modelling, Applied Economics, and Economics Letters. He also serves as a reviewer for several SSCI journals. His research achievements have been funded by the Contemporary Economics Doctoral Innovation Program.