- Volume 11 Issue 1
This study explores the effects of technology innovation activity on a profitability and the default risk of firms. Sample for this study consists of manufacturing firms listed on the Korea Stock Exchange from 1st January 2000 to 31st December 2007. We use of R&D ratio as a proxy of technology innovation activity. The default probability proxied for the default risk of firms is measured by the Merton's (1974) model where accounts for a market value of firms and a volatility of it. This study provides evidence that technology innovation activity has a positive effect on a profitability, but a negative effect on the default risk of firms. Our study also finds the significant mediation effect of profitability that the enhancement in profitability resulting from technology innovation activity lowers the default risk of firms.