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

  • Julio Pindado
  • Valdoceu de Queiroz
  • Chabela de la Torre

"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. Using the generalized method of moments and data from the Eurozone countries to estimate this model yields interesting results. Several firm characteristics (size, firm growth, and market share) positively affect the relationship between firm value and R&D spending, while others (free cash flow, dependence on external finance, labor intensity, and capital intensity) exert a negative effect. Therefore, we conclude that the effectiveness of R&D spending depends on firm characteristics". Copyright (c) 2010 Financial Management Association International.

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Article provided by Financial Management Association International in its journal Financial Management.

Volume (Year): 39 (2010)
Issue (Month): 2 (06)
Pages: 757-782

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Handle: RePEc:bla:finmgt:v:39:y:2010:i:2:p:757-782
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