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Market value of the firms and R&D investment: Theoretical overview and empirical estimation for the panel of countries

  • Josheski, Dushko
  • Magdinceva Sopova, Marija

The aim of this paper is to investigate the issue of R&D investment and the market value of the firm. This idea dating back from Arrow paper, later developed by Paul Romer but in the area of economic growth. Zvi Griliches (1979), first introduced the production function, which later would be used in a vast literature from this area (Market value of the firms and R&D investment). In the theoretical section of this paper we are describing Tobin’s original model, and Abel’s (1984) model, this models relates Tobin’s quotient with intangible assets of the company. In the empirical part we develop cross-section time series model (Feasible Generalized Least Squares Model), for a panel of countries in Europe including UK and Turkey, in total of 11 panels. Later we test that model by estimating the marginal effects of R&D investment with Tobin’s q on a small economy such as R. Macedonia. The results exert positive and statistically significant relationship between market value of the firms and R&D investment.

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Paper provided by ZBW - German National Library of Economics in its series EconStor Preprints with number 68488.

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Date of creation: 31 Jan 2013
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Handle: RePEc:zbw:esprep:68488
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  1. Bronwyn H. Hall & Grid Thoma & Salvatore Torrisi, 2007. "The market value of patents and R&D: Evidence from European firms," NBER Working Papers 13426, National Bureau of Economic Research, Inc.
  2. Iain Cockburn & Zvi Griliches, 1987. "Industry Effects and Appropriability Measures in the Stock Markets Valuation of R&D and Patents," NBER Working Papers 2465, National Bureau of Economic Research, Inc.
  3. 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.
  4. Missaka Warusawitharana, 2008. "Research and development, profits and firm value: a structural estimation," Finance and Economics Discussion Series 2008-52, Board of Governors of the Federal Reserve System (U.S.).
  5. Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(1), pages 15-29, February.
  6. Connolly, Robert A & Hirschey, Mark, 1984. "R&D, Market Structure, and Profits: A Value-Based Approach," The Review of Economics and Statistics, MIT Press, vol. 66(4), pages 682-86, November.
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