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

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  • Julio Pindado
  • Valdoceu De Queiroz
  • Chabela De La Torre

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. 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.

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  • Julio Pindado & Valdoceu De Queiroz & Chabela De La Torre, 2010. "How Do Firm Characteristics Influence the Relationship between R&D and Firm Value?," Financial Management, Financial Management Association International, vol. 39(2), pages 757-782, June.
    • Handle: RePEc:bla:finmgt:v:39:y:2010:i:2:p:757-782
    DOI: 10.1111/j.1755-053X.2010.01091.x
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    10. Woo Sung Kim & Kunsu Park & Sang Hoon Lee & Hongyoung Kim, 2018. "R&D Investments and Firm Value: Evidence from China," Sustainability, MDPI, vol. 10(11), pages 1-17, November.
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    12. duqi, andi & mirti, riccardo & torluccio, giuseppe, 2011. "An analysis of the R&D effect on stock returns for European listed firms," MPRA Paper 40012, University Library of Munich, Germany.
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    16. Alessandra Tognazzo & Federica Destro & Paolo Gubitta, 2012. "Patenting in family firms," "Marco Fanno" Working Papers 0155, Dipartimento di Scienze Economiche "Marco Fanno".
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    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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