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Does the Market Value R&D Investment by European Firms? Evidence from a Panel of Manufacturing Firms in France, Germany, and Italy

  • Bronwyn H. Hall
  • Raffaele Oriani

Several studies based on US and UK data have used market value as an indicator of the firm''s expected R&D performance. However, there exist no investigations for the continental countries in the European Union, partly because the analysis is complicated by data availability problems. In this paper we take a first step towards filling this gap using a newly constructed panel dataset of firms that are publicly traded in France, Germany, and Italy. Controlling for either permanent unobserved firm effects or sample selection due to the voluntary nature of R&D disclosure, we find that the relative shadow value of R&D in France and Germany is remarkably similar both to each other and to that in the US or the UK during the same period In contrast, we find that R&D in publicly traded Italian firms is not valued by financial markets on average. However, when we control for the presence of a single large shareholder, we find that both French and Italian firms have high R&D valuations when no single shareholder holds more than one third of the firm, but that R&D is essentially not valued in the other firms.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10408.

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Date of creation: Apr 2004
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Publication status: published as Hall, Bronwyn H. & Oriani, Raffaele, 2006. "Does the market value R&D investment by European firms? Evidence from a panel of manufacturing firms in France, Germany, and Italy," International Journal of Industrial Organization, Elsevier, vol. 24(5), pages 971-993, September.
Handle: RePEc:nbr:nberwo:10408
Note: IO PR
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  1. Jonathan S Seaton & Ian Walker, . "R & D in UK Quoted Companies: The Effects of Disclosure and Finance," Research Papers 95/4, CENTRE FOR RESEARCH IN EUROPEAN ECONOMICS AND FINANCE (CREEF).
  2. Mitali Das & Whitney K. Newey & Francis Vella, 2003. "Nonparametric Estimation of Sample Selection Models," Review of Economic Studies, Wiley Blackwell, vol. 70(1), pages 33-58, January.
  3. David Aboody & Baruch Lev, 2000. "Information Asymmetry, R&D, and Insider Gains," Journal of Finance, American Finance Association, vol. 55(6), pages 2747-2766, December.
  4. Benoît Mulkay & Bronwyn H, Hall & Jacques Mairesse, 2000. "Firm Level Investment and R&D in France and the United States : A Comparison," Working Papers 2000-49, Centre de Recherche en Economie et Statistique.
  5. Zvi Griliches & Jacques Mairesse, 1981. "Productivity and R and D at the Firm Level," NBER Working Papers 0826, National Bureau of Economic Research, Inc.
  6. Lev, Baruch & Sougiannis, Theodore, 1996. "The capitalization, amortization, and value-relevance of R&D," Journal of Accounting and Economics, Elsevier, vol. 21(1), pages 107-138, February.
  7. Rajan, Raghuram G & Zingales, Luigi, 2003. "Banks and Markets: the Changing Character of European Finance," CEPR Discussion Papers 3865, C.E.P.R. Discussion Papers.
  8. Stephen Bond & Dietmar Harhoff & John Van Reenen, 2003. "Corporate R&D and productivity in Germany and the United Kingdom," LSE Research Online Documents on Economics 770, London School of Economics and Political Science, LSE Library.
  9. Jeffrey W. Allen & Gordon M. Phillips, 2000. "Corporate Equity Ownership, Strategic Alliances, and Product Market Relationships," Journal of Finance, American Finance Association, vol. 55(6), pages 2791-2815, December.
  10. Maria Laura Parisi & Alessandro Sembenelli, 2001. "Is Private R&D Spending Sensitive to Its Price? Empirical Evidence on Panel Data for Italy," Boston College Working Papers in Economics 493, Boston College Department of Economics.
  11. Bronwyn H. Hall, 1990. "The Manufacturing Sector Master File: 1959-1987," NBER Working Papers 3366, National Bureau of Economic Research, Inc.
  12. Cockburn, Iain & Griliches, Zvi, 1988. "Industry Effects and Appropriability Measures in the Stock Market's Valuation of R&D and Patents," American Economic Review, American Economic Association, vol. 78(2), pages 419-23, May.
  13. Steve Bond & Julie Elston & Jacques Mairesse & Benoit Mulkay, 1997. "Financial factors and investment in Belgium, France, German and the UK: A comparison using company panel data," IFS Working Papers W97/08, Institute for Fiscal Studies.
  14. Louis K. C. Chan, 2001. "The Stock Market Valuation of Research and Development Expenditures," Journal of Finance, American Finance Association, vol. 56(6), pages 2431-2456, December.
  15. John Bound & Clint Cummins & Zvi Griliches & Bronwyn H. Hall & Adam B. Jaffe, 1982. "Who Does R&D and Who Patents?," NBER Working Papers 0908, National Bureau of Economic Research, Inc.
    • John Bound & Clint Cummins & Zvi Griliches & Bronwyn H. Hall & Adam B. Jaffe, 1984. "Who Does R&D and Who Patents?," NBER Chapters, in: R&D, Patents, and Productivity, pages 21-54 National Bureau of Economic Research, Inc.
  16. Lee, Lung-Fei, 1982. "Some Approaches to the Correction of Selectivity Bias," Review of Economic Studies, Wiley Blackwell, vol. 49(3), pages 355-72, July.
  17. Angelini, P. & Di Salvo, R. & Ferri, G., 1998. "Availability and cost of credit for small businesses: Customer relationships and credit cooperatives," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 925-954, August.
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