Title: R&D intensity and firm valuation: effect of director and manager incentives

Authors: Jang-Shee Barry Lin; Chunhui Liu

Addresses: Khalifa University of Science, Technology and Research, P.O. Box 127788, Abu Dhabi, UAE ' Caritas Institute of Higher Education, 18 Chui Ling Road, Tseung Kwan O, Hong Kong

Abstract: Using a sample of 5829 Taiwanese firm-year observations over the 2008-2012 period, we examine the relationship between R&D expenditure and firm valuation. For the whole sample, we find a significant positive association between R&D investment and firm valuation as measured by Market-to-book ratio. However, we also find the dummy variable for Director and Officers liability insurance to be a highly significant variable. Furthermore, we find that the positive association is only effective for the sub-sample of firms with D&O insurance. This is a natural experiment in which we see the critical moderating role played by the incentive of directors and officers as affected by D&O insurance in the relation between R&D spending and firm value.

Keywords: R&D expenditure; firm valuation; market to book ratio; D&O insurance; services and standards.

DOI: 10.1504/IJSS.2017.088179

International Journal of Services and Standards, 2017 Vol.12 No.1, pp.64 - 78

Received: 05 Apr 2017
Accepted: 08 May 2017
Published online: 27 Nov 2017 *