Nonlinear Models in Corporate Finance Research: Review, Critique, and Extensions

Sheng-Syan Chen (), Kim Wai Ho (), Cheng Few Lee and Keshab Shrestha

Review of Quantitative Finance and Accounting, 2004, vol. 22, issue 2, 169 pages

Abstract: Since the work of Morck, Shleifer and Vishny (1988), nonlinear model specification has gained more attention in corporate finance research. In this paper, we provide a detailed review of the previous studies that have examined nonlinear relations in corporate finance. We review the theory and evidence in these studies and discuss the advantages and disadvantages of the various methodologies used to detect nonlinearity. We also suggest two possible methodological extensions, which we apply in the empirical analysis of R&D investment and firm value.

Date: 2004
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