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How Do Firm Characteristics Influence the Relationship Between R&D and Firm Value?

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Author Info
Queiroz, Valdoceu de (Ministerio de Hacienda de Brasil)
Pindado, Julio () (Departamento de Administración y Economía de la Empresa, Facultad de Economía y Empresa, Universidad de Salamanca)
Torre, Chabela de la () (Departamento de Administración y Economía de la Empresa, Facultad de Economía y Empresa, Universidad de Salamanca)

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Abstract

This paper focuses on how a firm’s characteristics affect the market valuation of its research and development (R&D) spending. We derive a valuation model based on the capital market arbitrage condition. The estimation of this model by using the Generalized Method of Moments and data from the eurozone countries yields interesting results. Several firm characteristics (namely, size, firm growth and market share) are found to positively affect the relationship between firm value and R&D spending, while others (specifically, free cash flow, dependence on external finance, labour intensity and capital intensity) exert a negative effect. Therefore, the effectiveness of the R&D spending depends on the firm characteristics.

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Paper provided by Interuniversitary Doctorate Program "New Trends on Business Administration", Universities of Valladolid, Burgos and Salamanca (Spain). Programa de Doctorado Interuniversitario "Nuevas Tendencias en Dirección de Empresas", Universidades de Valladolid, Burgos y Salamanca (España). in its series Documentos de Trabajo "Nuevas Tendencias en Dirección de Empresas". Working Papers "New Trends on Business Administration". with number 2006-09.

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Length: 31 pages
Date of creation: Dec 2006
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Handle: RePEc:ntd:wpaper:2006-09

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Related research
Keywords: Research and development valuation model firm characteristics.

Find related papers by JEL classification:
G30 - Financial Economics - - Corporate Finance and Governance - - - General
O32 - Economic Development, Technological Change, and Growth - - Technological Change - - - Management of Technological Innovation and R&D

This paper has been announced in the following NEP Reports:

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