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The impact of R%D on the value of European firms

Author

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  • Andi Duqi
  • Giuseppe Torluccio

Abstract

The purpose of this paper is to provide additional research on the market valuation of R%D in Europe, and also to shed light on some firm and country characteristics which sensibly modulate the effect of R%D on firms' value. The analysis is performed using a panel regression approach with fixed effects, including time and country effects, for years 2001-2007. Empirical results show that the effect of R%D expenditures is positive and significant across countries with the exception of Italian firms, confirming previous evidence on this topic. R%D is most highly valued for firms that operate in hi-tech sectors, whereas it remains negative for low-tech ones. Size generally presents negative returns to scale for these firms, indicating that small firms which operate in hi-tech industrial sectors are able to invest more efficiently in R%D. Firms that operate in low-tech industries can achieve consistent returns to scale due to their alternative investment in innovation. Well-developed loan and equity markets and a high level of shareholder protection have a positive effect on the market valuation of R%D. The empirical results we achieve offer an interesting point of view about the effect of R%D on firms' performance across European financial markets.

Suggested Citation

  • Andi Duqi & Giuseppe Torluccio, 2013. "The impact of R%D on the value of European firms," International Journal of Accounting, Auditing and Performance Evaluation, Inderscience Enterprises Ltd, vol. 9(1), pages 1-26.
    • Handle: RePEc:ids:ijaape:v:9:y:2013:i:1:p:1-26
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