Size, Leverage, Concentration, and R&D Investment in Generating Growth Opportunities

Yew Kee Ho, Mira Tjahjapranata and Chee Meng Yap
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Yew Kee Ho: National University of Singapore
Mira Tjahjapranata: Development Bank of Singapore
Chee Meng Yap: National University of Singapore

The Journal of Business, 2006, vol. 79, issue 2, 851-876

Abstract: We show that a firm's ability to reap growth opportunities from R&D investments depends on its size, leverage, and the industry concentration. While the direct effects of these factors are significant, the size-leverage interaction reveals further important insights. Large firms' advantages over small firms disappear as their leverage increases. Specifically, small firms with high leverage reap the greatest growth opportunities. Our results provide explanations for inconsistent findings observed when size and leverage are considered independently in existing studies on value and stock return relevance of R&D investment. We also highlight firm-specific factors that guide investors' valuation of R&D.

Date: 2006
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Persistent link: https://EconPapers.repec.org/RePEc:ucp:jnlbus:v:79:y:2006:i:2:p:851-876

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