R&D intensity and market valuation of firm: a study of R&D incurring manufacturing firms in India

Pramod Naik (), Krishnan Narayanan () and Padhi Puja

MPRA Paper from University Library of Munich, Germany

Abstract: 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.

Keywords: R&D intensity; Firm value; Tobin’s q; Manufacturing firms (search for similar items in EconPapers)
JEL-codes: E44 L25 O14 O32 (search for similar items in EconPapers)
Date: 2012-02-28
New Economics Papers: this item is included in nep-ino and nep-tid
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: R&D Intensity and Market Valuation of Firm: A Study of R&D Incurring Manufacturing Firms in India (2014)
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