The interaction between product market competition, R&D investment, and the financing choices of R&D-intensive firms on the development of innovative products is only partially understood. We hypothesize that as competition increases, R&D-intensive firms will: (1) increase R&D investment relative to existing assets in place; (2) carry more cash; and (3) maintain less net debt. Using the Hatch-Waxman Act as an exogenous shock to competition, we provide causal evidence supporting these hypotheses through a difierences-in-difierences analysis that exploits difeerences between the biopharma industry and other industries, and heterogeneity within the biopharma industry. We also explore how these changes afect innovative output.
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© The Author(s), 2021.