Value maximizing hurdle rates for R&D investment
AbstractWe show that the value maximizing hurdle rate for research and development (R&D) investments among private firms operating in a market setting is less than for conventional investments despite the fact that R&D has development risk. Because development risk arises only during R&D, entrepreneurs control this risk by deferring or pursuing R&D depending upon profitability. This risk management moderates downside loss and encourages upside gain which increases the value attraction of R&D and decreases the value maximizing hurdle rate below that of conventional investment.
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Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal Economics of Innovation and New Technology.
Volume (Year): 19 (2010)
Issue (Month): 8 ()
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Web page: http://www.tandfonline.com/GEIN20
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