Title: The impact of R&D on the value of European firms

Authors: Andi Duqi; Giuseppe Torluccio

Addresses: Department of Management, University of Bologna, Via Capo di Lucca, 34, 40126, Bologna, Italy. ' Department of Management, University of Bologna, Via Capo di Lucca, 34, 40126, Bologna, Italy; CEFIN – University of Modena and Reggio, Via Berengario, 51, 41100, Modena, Italy

Abstract: The purpose of this paper is to provide additional research on the market valuation of R&D in Europe, and also to shed light on some firm and country characteristics which sensibly modulate the effect of R&D on firms' value. The analysis is performed using a panel regression approach with fixed effects, including time and country effects, for years 2001-2007. Empirical results show that the effect of R&D expenditures is positive and significant across countries with the exception of Italian firms, confirming previous evidence on this topic. R&D is most highly valued for firms that operate in hi-tech sectors, whereas it remains negative for low-tech ones. Size generally presents negative returns to scale for these firms, indicating that small firms which operate in hi-tech industrial sectors are able to invest more efficiently in R&D. Firms that operate in low-tech industries can achieve consistent returns to scale due to their alternative investment in innovation. Well-developed loan and equity markets and a high level of shareholder protection have a positive effect on the market valuation of R&D. The empirical results we achieve offer an interesting point of view about the effect of R&D on firms' performance across European financial markets.

Keywords: Europe; financial markets; market value; R&D expenditure; research and development; residual income; performance evaluation; firm value; firm size; hi-tech industries; low-tech industries; loan markets; equity markets; shareholder protection; high technology; low technology.

DOI: 10.1504/IJAAPE.2013.050585

International Journal of Accounting, Auditing and Performance Evaluation, 2013 Vol.9 No.1, pp.1 - 26

Received: 10 Oct 2011
Accepted: 04 Apr 2012
Published online: 30 Jan 2014 *

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