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The effect of R&D investment on firm value: An examination of US manufacturing and service industries

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  • Ehie, Ike C.
  • Olibe, Kingsley

Abstract

We examine the association between investment in research and development (R&D) and market value among US firms over an 18-year period covering 26,500 firm-years. We study the R&D investment-firm performance linkage in both manufacturing and service industries to evaluate differences in their relative contributions to firm value. Finally, we investigate the impact of a major economic disruption such as the terrorist bombing of the World Trade Center in New York on September 11, 2001 (popularly known as 9/11) on R&D investment relative to the performance of a firm. After controlling for firm size, industry concentration, and leverage, we find that R&D investment positively affects firm performance. More specifically, R&D investment in the manufacturing sector contributes more positively to firm market value than in the service sector pre-9/11. However, the service sector shows stronger R&D investment-market performance association post-9/11 than manufacturing firms. Consistent with the resource-based literature, the results show that investment in R&D contributes positively to firm performance for both manufacturing and service firms, despite major economic disruptions.

Suggested Citation

  • Ehie, Ike C. & Olibe, Kingsley, 2010. "The effect of R&D investment on firm value: An examination of US manufacturing and service industries," International Journal of Production Economics, Elsevier, vol. 128(1), pages 127-135, November.
    • Handle: RePEc:eee:proeco:v:128:y:2010:i:1:p:127-135
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