STOCK MARKET VALUATIONS OF R&D AND ELECTRONICS FIRMS DURING TAIWAN'S RECENT ECONOMIC TRANSITION

Chaoshin Chiao and Weifeng Hung

The Developing Economies, 2006, vol. 44, issue 1, 53-78

Abstract: The objective of the present study is to investigate the market valuation of Research and Development (R&D) investments in the Taiwanese stock market from July 1988 to June 2002. The motivation stems from Taiwan's recent economic transition from a labor‐intensive, then to a capital‐intensive, and currently to a technology‐based economy. The results support not only the existence, but also the persistence of R&D‐associated mispricing. More importantly, it has become stronger as the electronics industry gradually dominates the economy. First, R&D‐intensive stocks tend to outperform stocks with little or no R&D. Second, the R&D‐intensity effect cannot fully be attributed to firm size. Third, the R&D‐intensity effect is more pronounced for firms in the electronics industry after 1996.

Date: 2006
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