R&D expenses and firm valuation: a literature review

Purpose - The purpose of this paper is to provide a comprehensive review of the literature on R&D expenses and subsequent firm valuation and to briefly highlight some gaps and implications for future research. Design/methodology/approach - The approach is a review of studies on R&D and valuation between 1978 and 2007. The valuation issues have been grouped into general topics identified among the overall volume of research: economic characteristics, actual and forecast firm performance, capital structure, risk, and other topics which do not fit into the previous categories. Findings - The paper provides a comprehensive assessment of the literature findings on a variation of valuation topics useful for internal and external users of financial statements of firms intensive in R&D investments. It sheds light on certain literature limitations and thus guides the users of financial statements regarding to which issues they should pay attention when analysing the financial statements of firms intensive in R&D. Research limitations/implications - Existing research on R&D and valuation focuses mainly on the USA and UK and therefore raises issues of generalisation of the results. Practical implications - The paper provides a useful guide for the users of financial statements of R&D intensive firms, since it provides information on possible consequences of these expenses regarding a variety of valuation issues. Originality/value - The paper fills an information gap by addressing a range of valuation issues on R&D and offers relevant information guidance to the users of financial statements.