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Linguistic nuances and the valuation of corporate investments in innovation

Author

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  • Machokoto, Michael
  • Lemma, Tesfaye T.
  • Matemane, Reon

Abstract

Based on data drawn from 45 countries covering the period 1981–2019, we explore whether and how future time reference in languages (FTR) influences the relationship between corporate innovation investments and firm value. We find a positive association between corporate investments in innovation and firm value, with this association being more pronounced for firms in weak-FTR countries. These findings are robust to various concerns and provide novel insights into the role of language, an informal institution, in shaping the relevance and valuations of corporate decisions by capital markets. The findings underscore the necessity of accounting for not only formal institutional frameworks but also informal sociocultural factors in shaping the capital market dynamics of shareholder value — an aspect that has thus far received limited attention compared to the focus on formal institutions in extant literature.

Suggested Citation

  • Machokoto, Michael & Lemma, Tesfaye T. & Matemane, Reon, 2025. "Linguistic nuances and the valuation of corporate investments in innovation," Finance Research Letters, Elsevier, vol. 79(C).
    • Handle: RePEc:eee:finlet:v:79:y:2025:i:c:s1544612325004696
    DOI: 10.1016/j.frl.2025.107206
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    Keywords

    Innovation; Languages; Agency conflicts; Firm performance; Firm value;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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