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More Evidence That Corporate R&D Investment (and Effective Boards) Can Increase Firm Value
Author(s) -
Tong Jamie Y.,
Zhang Feida Frank
Publication year - 2014
Publication title -
journal of applied corporate finance
Language(s) - English
Resource type - Journals
eISSN - 1745-6622
pISSN - 1078-1196
DOI - 10.1111/jacf.12071
Subject(s) - cash flow , equity (law) , earnings , monetary economics , business , free cash flow , capital expenditure , economics , value (mathematics) , investment (military) , independence (probability theory) , finance , statistics , mathematics , machine learning , politics , political science , computer science , law
The authors find that higher R&D expenditures generally lead to both higher expected future cash flow and a lower cost of equity. In addition, they find that the positive connections between R&D spending and higher expected future cash flow and lower cost of equity are stronger in companies with more effective boards (as indicated by measures of director independence and experience). Such findings should help senior executives overcome any concern that investors may not give full credit to R&D investments because they are fully expensed and lead to lower reported earnings in the short term.