Pramod, Kumar Naik and Krishnan, Narayanan and Puja, Padhi (2012): R&D intensity and market valuation of firm: a study of R&D incurring manufacturing firms in India.
This is the latest version of this item.
Download (344kB) | Preview
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.
|Item Type:||MPRA Paper|
|Original Title:||R&D intensity and market valuation of firm: a study of R&D incurring manufacturing firms in India|
|English Title:||R&D Intensity and Market Valuation of Firm: A study of R&D incurring Manufacturing Firms in India|
|Keywords:||R&D intensity, Firm value, Tobin’s q, Manufacturing firms|
|Subjects:||L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L25 - Firm Performance: Size, Diversification, and Scope
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy
O - Economic Development, Technological Change, and Growth > O3 - Technological Change; Research and Development; Intellectual Property Rights > O32 - Management of Technological Innovation and R&D
O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O14 - Industrialization; Manufacturing and Service Industries; Choice of Technology
|Depositing User:||Pramod K Naik|
|Date Deposited:||13. Mar 2012 03:18|
|Last Modified:||12. Feb 2013 17:32|
Baltagi, B. H. 2005. Econometric Analysis of Panel Data, Third Edition, John Wiley & Sons, Ltd.
Bhat, S. & Narayanan, K. 2009. Technological Efforts, Firm Size and Exports in the Basic Chemical Industry in India, Oxford Development Studies 37 (2): 145-169.
Bhattacharyya S. and Saxena, A. 2009. Does the Firm Size Matter? An Empirical Enquiry into the Performance of Indian Manufacturing Firms, PES Business Review 4 (2): 24 – 33.
Bracker, K. and Krishnan R. 2011. Examining the impact of research and development expenditures on Tobin's Q, Academy of Strategic Management Journal 10 (1).
Chadha, A. and Oriani, R. 2009. R&D Market Value under weak Intellectual Property Rights protection: the case of India, Scientometrics, 82 (1): 59 – 74. Chan, Louis K. C., Lakonishok, J. and Sougiannis T. 2001. The Stock Market Valuation of Research and Development Expenditures, The Journal of Finance, 56: 2431 – 2456.
Chauvin, K. W. & Hirschey, M. 1993. Advertising, R&D Expenditures and the Market Value of the Firm, Financial Management, 22 (4): 128 – 140.
Chatterjee, C. 2007. Fundamental Patent Reform and the Private Returns to R&D: The Case of Indian Pharmaceuticals, Working Paper Series, Carnegie Mellon University, Pittsburgh, 6: 1 – 58.
Chung, Kee H, Peter, W. and Kedia, B. 2003. Corporate governance and market valuation of capital and R&D investments, Review of Financial Economics 12: 161 – 172.
Connolly, R. A. and Hirschey, M. 1984. R&D, Market Structures and Profits: A Value based Approaches, Review of Economics and Statistics 66: 682 – 686.
Connolly, R. A., and Hirschey, M. 1988. Market Value and Patents: A Bayesian Approach, Economics Letters, North-Holland, 27: 83 – 87.
Connolly, R. A., and Hirschey, M. 2005. Firm size and the effect of R&D on Tobin’s q, R&D Management 35(2): 217 – 223.
Feng, He, and Rong, C. 2007. Innovation, Firm Efficiency and Firm Value: Firm level evidence in Japanese Electricity Machinery Industry, Wireless Communications, Networking and Mobile Computing. International Conference on Sept. 21-25: 4217 – 4220. Griliches, Z. 1981. Market value, R&D and Patents, Economics Letters 7: 183 – 187.
Hall, Bronwyn H. 1993. The Stock Market’s Valuation of R&D Investment During the 1980’s, The American Economic Review 83(2): 259- 264.
Hirschey, M. 1982. Intangible capital aspects of Advertising and R&D expenditures, Journal of Industrial Economics 30 (4):375 – 390.
Ho, Yew K., Keh, H. T. and Ong, J. M. 2005. The Effects of R&D and Advertising on Firm Value: An Examination of Manufacturing and Nonmanufacturing Firms, IEEE Transactions on Engineering Management 52(1): 3-14.
Huang, C. J., & Chun J. L. 2006. Exploration for the Relationship Between Innovation, IT and Performance, Journal of Intellectual Capital 6(2): 237-252.
Hausman, J.A. 1978. Specification tests in econometrics, Econometrica 46 (6): 1251-1272. Johnston, J and Dinardo, J. 1997. Econometric Methods, 4th Edition, The McGraw Hill Companies, Inc. New York.
Kavida, V. and Sivakoumar, N. 2009. The Value of Intellectual Assets in Indian Pharmaceutical Industry: An Empirical Study of the components of Market value, .Working paper Series, March, 12: 1–28. Electronic copy retrieved SSRN:http://ssrn.com/abstract=1357340.
Lee, J. and Habte-Giorgis, B. 2004. Empirical approach to the Sequential Relationships between Firm Strategy, Export Activity, and Performance in U.S. Manufacturing Firms, International Business Review 13(1): 101–129.
Megna, P. and Klock, M. 1993. The Impact of Intangible capital on Tobin’s q in the Semiconductor Industry, The American Economic Review 83(2): 265 – 269. Morbey, G. K. 1988. R&D: Its Relationship to Company Performance, Journal of Product Innovation Management 5: 191 – 200.
Munari, F. and Oriani, R. 2002. Privatization and R&D Performance: An Empirical Analysis Based on Tobin's q, FEEM Working Paper 63: 1 – 34.
Naik, P. K., Narayanan. K. and Padhi, P. 2011. R&D Expenditure and Firm Performance: A study of the Electrical and Electronics industry in India, Taylor’s Business Review 1 (1): 65-81.
Narayanan, K. and Banerjee, N. 2004. Tecnological Effort, Firm size and Profit margins in Indian Industries, The ICFAI Journal of Industrial Economics 1(2): 7 – 20.
Pandit, B. L. and Siddharthan, N. S. 2003. MNEs and market valuation of firms: a cross sectional study of Indian electrical and electronic goods manufacturing firms, Applied Economics, 35: 675 – 681.
Sarkar, J. and Sarkar, S. 2005. Multiple Board Appointments and Firm Performance in Emerging Economies: Evidence from India. Working Paper Series, IGIDR, India, No. WP-2005-001: 1 – 34.
Xu, M. and Zhang, C. 2004. The Explanatory Power of R&D for the Cross- Section of Stock Returns: Japan 1985-2000, Pacific-Basin Finance Journal 12(3): 245-269.
Available Versions of this Item
R&D intensity and market valuation of firm: a study of R&D incurring manufacturing firms in India. (deposited 12. Mar 2012 13:36)
- R&D intensity and market valuation of firm: a study of R&D incurring manufacturing firms in India. (deposited 13. Mar 2012 03:18) [Currently Displayed]