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Firm value and investment in R&D
Author(s) -
Johnson Lewis D.,
Pazderka Bohumir
Publication year - 1993
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.4090140103
Subject(s) - economics , profitability index , stock market , value (mathematics) , investment (military) , monetary economics , market value , financial economics , econometrics , finance , mathematics , biology , statistics , paleontology , horse , politics , political science , law
This paper employs Canadian stock market and corporate financial data to test the hypothesis that the market places a positive value on reported research and development spending of firms as an indicator of expected profitability and growth. The empirical results show a positive, statistically significant relationship between R&D spending and market value. The magnitudes of estimated coefficients are consistent with those reported in several published US studies. These results suggest that investment in R&D is a rational allocation of resources, contrary to the undervaluation hypothesis.