Linguistic nuances and the valuation of corporate investments in innovation

Michael Machokoto, Tesfaye T. Lemma and Reon Matemane

Finance Research Letters, 2025, vol. 79, issue C

Abstract: Based on data drawn from 45 countries covering the period 1981–2019, we explore whether and how future time reference in languages (FTR) influences the relationship between corporate innovation investments and firm value. We find a positive association between corporate investments in innovation and firm value, with this association being more pronounced for firms in weak-FTR countries. These findings are robust to various concerns and provide novel insights into the role of language, an informal institution, in shaping the relevance and valuations of corporate decisions by capital markets. The findings underscore the necessity of accounting for not only formal institutional frameworks but also informal sociocultural factors in shaping the capital market dynamics of shareholder value — an aspect that has thus far received limited attention compared to the focus on formal institutions in extant literature.

Keywords: Innovation; Languages; Agency conflicts; Firm performance; Firm value (search for similar items in EconPapers)
JEL-codes: G01 G31 G32 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:79:y:2025:i:c:s1544612325004696

DOI: 10.1016/j.frl.2025.107206

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