ENVIRONMENTAL DYNAMISM, CAPITAL STRUCTURE AND INNOVATION: AN EMPIRICAL TEST

Innovation is at the heart of firm success in today's competitive environment. Those factors contributing to successful innovation efforts should be important topics of research. In this study we formulated hypotheses linking the interaction between environmental dynamism and capital structure with firm innovation. Using U.S. firms as our research setting, we show that for firms in environments characterized as highly dynamic, high levels of debt are negatively related to innovation, and in stable environments, high levels of debt are positively related to innovation. Contributions, practical implications, and future extensions are considered.