Firm value and investment in R&D | Zendy

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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.

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