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R&D Intensity and Market Valuation of Firm: A Study of R&D Incurring Manufacturing Firms in India

Author

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  • Pramod Kumar Naik

Abstract

This study examines the impact of R&D expenditure on market valuation of firm proxied by Tobin’s q using firm level data for manufacturing firms in India. To accomplish the research objective this study obtained data from Prowess database of Centere for Monitoring Indian Economy (CMIE) over the period of 2001-2010. The study forms an unbalanced panel comprising 2382 firm-year observations and employs Pooled-OLS and fixed effects models to analyze the relationship between R&D intensity and firm value as measured by Tobin’s q. The findings reflect an inverted U-shaped relationship between R&D intensity and firm value indicating the diminishing marginal return to each unit spent on R&D. The result implies that R&D investment have a positive impact on the market value of firm at the beginning, however, after a point these investments lower the market performance of firms.

Suggested Citation

  • Pramod Kumar Naik, 2014. "R&D Intensity and Market Valuation of Firm: A Study of R&D Incurring Manufacturing Firms in India," Journal of Studies in Dynamics and Change (JSDC), ISSN: 2348-7038, Voices of Inclusive Change and Expressions- (VOICE) Trust, Dehradun, Uttarakhand, vol. 1(7), pages 295-308., November.
    • Handle: RePEc:sdc:journl:v:1:y:2014:i:7:p:295-308.
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    Cited by:

    1. Muhammad Usman & Rizwan Shabbir & Ilyas Ahmad & Ahsan Zubair, 2022. "Host Countries’ Institutional Environment and Multinational Enterprises: Does Home-Host Developmental Status Matter?," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 13(4), pages 2640-2664, December.
    2. Som Sekhar Bhattacharyya & Praveen Nemana, 2024. "Effect of Demonetization on Advertising, Research & Development and Human Resource Intensities and its Impact on Firm’s Performance," Vision, , vol. 28(3), pages 361-373, June.
    3. Lu, Sean, 2020. "The explanatory power of R&D for the stock returns in the Chinese equity market," Pacific-Basin Finance Journal, Elsevier, vol. 62(C).
    4. Hervani, Aref Agahei & Sarkis, Joseph & Helms, Marilyn M., 2017. "Environmental goods valuations for social sustainability: A conceptual framework," Technological Forecasting and Social Change, Elsevier, vol. 125(C), pages 137-153.
    5. Zhipeng Zang & Qiwei Zhu & Helena Mogorrón-Guerrero, 2019. "How Does R&D Investment Affect the Financial Performance of Cultural and Creative Enterprises? The Moderating Effect of Actual Controller," Sustainability, MDPI, vol. 11(2), pages 1-19, January.

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    Keywords

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    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • P33 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - International Trade, Finance, Investment, Relations, and Aid
    • P45 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - International Linkages

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