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R&D and dividend payments as determinants of corporate value in the UK

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  • Jannine Poletti Hughes

Abstract

Purpose - The purpose of this research is to expand on the available literature that suggests a positive effect of R&D activities and dividend payments on firms' value by considering three additional aspects that differ from previous research. Design/methodology/approach - The analysis of the valuation model is performed in a panel dataset of UK firms from 1994 to 2005 (8,559 observations). The methodology consists in applying General Method of Moments (GMM) to control for endogeneity, firm‐specific effects and time effects. Findings - The findings indicate that the use of GMM in the valuation model is adequate, given the statistical properties of the data. R&D stock is shown to be positively associated with corporate value, but its impact is lower than for R&D expenditure. Both special dividends and ordinary dividends are found to be positively associated with corporate value, supporting the signalling hypothesis which presupposes that managers might use dividends as a signal about companies' future profitability. Originality/value - This paper contributes to the empirical literature of corporate finance, not only with respect to the effect of special dividends and R&D stock on corporate value, as opposed to R&D expenditure and ordinary dividends (as in previous studies for the UK), but also in confirming that, after endogeneity has been controlled, there is a significant and positive effect of these variables but with a different impact.

Suggested Citation

  • Jannine Poletti Hughes, 2008. "R&D and dividend payments as determinants of corporate value in the UK," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 4(1), pages 76-91, January.
    • Handle: RePEc:eme:ijmfpp:v:4:y:2008:i:1:p:76-91
    DOI: 10.1108/17439130810837393
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    References listed on IDEAS

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    1. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
    2. Megna, Pamela & Klock, Mark, 1993. "The Impact on Intangible Capital on Tobin's q in the Semiconductor Industry," American Economic Review, American Economic Association, vol. 83(2), pages 265-269, May.
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    Cited by:

    1. Akbar, Saeed & Poletti-Hughes, Jannine & El-Faitouri, Ramadan & Shah, Syed Zulfiqar Ali, 2016. "More on the relationship between corporate governance and firm performance in the UK: Evidence from the application of generalized method of moments estimation," Research in International Business and Finance, Elsevier, vol. 38(C), pages 417-429.
    2. Kumar, Satish, 2017. "New evidence on stock market reaction to dividend announcements in India," Research in International Business and Finance, Elsevier, vol. 39(PA), pages 327-337.

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