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The separate and joint effects of the market for corporate control and board effectiveness on R&D valuation

Author

Listed:
  • Shimin Chen

    (China Europe International Business School, Shangai, China)

  • Bin Srinidhi

    (UTA College of Business, The University of Texas at Arlington, Arlington, TX, USA)

  • Lixin (Nancy) Su

    (Department of Accountancy, Lingnan University, Hong Kong)

  • Jamie Y Tong

    (Accounting and Finance Discipline, The University of Western Australia, Crawley, WA, Australia)

Abstract

This study finds that stronger market control (measured as fewer anti-takeover provisions) and more effective boards (measured as boards that are more independent and for which independent directors have more outside directorships) are both associated with higher R&D valuation. Furthermore, stronger market control (more effective board governance) is associated with higher R&D valuation only in the presence of weaker board governance (market control). Taken together, the results are consistent with the interpretation that both the market for corporate control and effective boards mitigate agency conflicts arising from R&D investments and improve the market valuation of R&D. Furthermore, the two mechanisms act as substitutes in doing so. JEL Classification: G34, G32, M41

Suggested Citation

  • Shimin Chen & Bin Srinidhi & Lixin (Nancy) Su & Jamie Y Tong, 2018. "The separate and joint effects of the market for corporate control and board effectiveness on R&D valuation," Australian Journal of Management, Australian School of Business, vol. 43(2), pages 203-224, May.
    • Handle: RePEc:sae:ausman:v:43:y:2018:i:2:p:203-224
    DOI: 10.1177/0312896217718891
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    References listed on IDEAS

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    More about this item

    Keywords

    Board; market for corporate control; R&D valuation;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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