R&D intensity and market valuation of firm: a study of R&D incurring manufacturing firms in India
The present study examines the impact of R&D expenditure on market valuation of firm using Tobin’s q. The study uses firm level data for Indian manufacturing sector obtained from Prowess database of CMIE for the period 2001-2010. The study forms an unbalanced panel with 326 R&D incurring (reporting) firms and employs Pooled-OLS and fixed effects models to analyze the relationship between R&D investment and firm value. After controlling some firm specific variables the present study finds an inverted U-shaped relationship between R&D intensity and firm value indicating the diminishing marginal return to each rupee spent on R&D. This finding is consistent with the findings of Huang and Liu (2005) for Taiwan and Bracker and Krishnan (2011) for US. It indicates that, R&D investment have a positive impact on the market value of firm at the beginning, but, when the investment exceeds an optimal level, these investments lower the firm value.
|Date of creation:||29 Feb 2012|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Savita Bhat & K. Narayanan, 2009. "Technological Efforts, Firm Size and Exports in the Basic Chemical Industry in India," Oxford Development Studies, Taylor & Francis Journals, vol. 37(2), pages 145-169.
- B. L. Pandit & N. S. Siddharthan, 2003. "MNEs and market valuation of firms: a cross-sectional study of Indian electrical and electronic goods manufacturing firms," Applied Economics, Taylor & Francis Journals, vol. 35(6), pages 675-681.
- Megna, Pamela & Klock, Mark, 1993. "The Impact on Intangible Capital on Tobin's q in the Semiconductor Industry," American Economic Review, American Economic Association, vol. 83(2), pages 265-69, May.
- Sarkar, Jayati & Sarkar, Subrata, 2009.
"Multiple board appointments and firm performance in emerging economies: Evidence from India,"
Pacific-Basin Finance Journal,
Elsevier, vol. 17(2), pages 271-293, April.
- Jayati Sarkar & Subrata Sarkar, 2005. "Multiple Board Appointments and Firm Performance in Emerging Economies : Evidence from India," Microeconomics Working Papers 22394, East Asian Bureau of Economic Research.
- Jayati Sarkar & Subrata Sarkar, 2005. "Multiple board appointments and firm performance in emerging economies: Evidence from India," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2005-001, Indira Gandhi Institute of Development Research, Mumbai, India.
- J. A. Hausman, 1976.
"Specification Tests in Econometrics,"
185, Massachusetts Institute of Technology (MIT), Department of Economics.
- Connolly, Robert A. & Hirschey, Mark, 1988. "Market value and patents : A Bayesian approach," Economics Letters, Elsevier, vol. 27(1), pages 83-87.
- Bhattacharyya, Surajit & Saxena, Arunima, 2009. "Does the Firm Size Matter? An Empirical Enquiry into the Performance of Indian Manufacturing Firms," MPRA Paper 13029, University Library of Munich, Germany.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:37299. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht)
If references are entirely missing, you can add them using this form.