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More Evidence That Corporate R&D Investment (and Effective Boards) Can Increase Firm Value

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  • Jamie Y. Tong
  • Feida (Frank) Zhang

Abstract

type="main"> The authors find that higher R&D expenditures generally lead to both higher expected future cash flow and a lower cost of equity. In addition, they find that the positive connections between R&D spending and higher expected future cash flow and lower cost of equity are stronger in companies with more effective boards (as indicated by measures of director independence and experience). Such findings should help senior executives overcome any concern that investors may not give full credit to R&D investments because they are fully expensed and lead to lower reported earnings in the short term.

Suggested Citation

  • Jamie Y. Tong & Feida (Frank) Zhang, 2014. "More Evidence That Corporate R&D Investment (and Effective Boards) Can Increase Firm Value," Journal of Applied Corporate Finance, Morgan Stanley, vol. 26(2), pages 94-100, June.
    • Handle: RePEc:bla:jacrfn:v:26:y:2014:i:2:p:94-100
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    File URL: http://hdl.handle.net/10.1111/jacf.12071
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    Citations

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    Cited by:

    1. Wenlong He & Zi-Lin He & Tony W. Tong, 2020. "Ownership Change and Firm Innovation: The Mediating Role of Interest Alignment," Strategy Science, INFORMS, vol. 5(1), pages 17-38, March.
    2. Chen, Ru & Tong, Jamie Yixing & Zhang, Feida (Frank) & Zhou, Gaoguang (Stephen), 2021. "Do female directors enhance R&D performance?," International Review of Economics & Finance, Elsevier, vol. 74(C), pages 253-275.
    3. Daitian Li & Tony W Tong & Yangao Xiao & Feida Zhang, 2022. "Terrorism-induced uncertainty and firm R&D investment: A real options view," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 53(2), pages 255-267, March.
    4. Shimin Chen & Bin Srinidhi & Lixin (Nancy) Su & Jamie Y Tong, 2018. "The separate and joint effects of the market for corporate control and board effectiveness on R&D valuation," Australian Journal of Management, Australian School of Business, vol. 43(2), pages 203-224, May.
    5. Fabrizio Rossi & Richard J. Cebula, 2015. "Does the Board of Directors Affect the Extent of Corporate R&D? Evidence from Italian listed companies," Economics Bulletin, AccessEcon, vol. 35(4), pages 2567-2580.

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