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The information environment of the firm and the market valuation of R&D

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  • Lu Y. Zhang
  • Melissa Toffanin

Abstract

We examine whether firms’ information environment influences the market valuation of their hard‐to‐value knowledge assets: R&D capital. We find that a better information environment, as measured by greater analyst coverage, lower earnings forecast dispersion, and greater earnings forecasting accuracy, is associated with higher stock market valuation of firms’ R&D capital. We conduct additional analyses to rule out alternative explanations and test for the direction of causality. Our causal evidence suggests that analysts significantly reduce the information uncertainty surrounding firms’ R&D capital.

Suggested Citation

  • Lu Y. Zhang & Melissa Toffanin, 2018. "The information environment of the firm and the market valuation of R&D," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 45(9-10), pages 1051-1081, October.
    • Handle: RePEc:bla:jbfnac:v:45:y:2018:i:9-10:p:1051-1081
    DOI: 10.1111/jbfa.12349
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    Cited by:

    1. Tu Nguyen & Jing Zhao, 2021. "Industry tournament incentives and corporate innovation," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(9-10), pages 1797-1845, October.
    2. Liao, Lin & Yao, Daifei (Troy) & Kang, Helen & Morris, Richard D., 2020. "The impact of legal efficacy on value relevance of the three-level fair value measurement hierarchy," Pacific-Basin Finance Journal, Elsevier, vol. 59(C).
    3. Narayan, Paresh Kumar & Narayan, Seema & Tran, Vuong Thao, 2023. "Patent-related intellectual property and corporate investment," Finance Research Letters, Elsevier, vol. 52(C).
    4. Zhangsheng Jiang, 2020. "Can the Gap and Rating of Market Expectation Promote Innovation Input of China Manufacturers?," Sustainability, MDPI, vol. 12(5), pages 1-19, March.

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