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

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  • Yew Kee Ho

    (National University of Singapore)

  • Mira Tjahjapranata

    (Development Bank of Singapore)

  • Chee Meng Yap

    (National University of Singapore)

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.

Suggested Citation

  • Yew Kee Ho & Mira Tjahjapranata & Chee Meng Yap, 2006. "Size, Leverage, Concentration, and R&D Investment in Generating Growth Opportunities," The Journal of Business, University of Chicago Press, vol. 79(2), pages 851-876, March.
    • Handle: RePEc:ucp:jnlbus:v:79:y:2006:i:2:p:851-876
    DOI: 10.1086/499140
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    Citations

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    Cited by:

    1. Hsiang-Lan Chen & Wen-Tsung Hsu & Yen-Sheng Huang, 2010. "Top management team characteristics, R&D investment and capital structure in the IT industry," Small Business Economics, Springer, vol. 35(3), pages 319-333, October.
    2. Yuxin Li & Derek Bosworth, 2020. "R&D spillovers in a supply chain and productivity performance in British firms," The Journal of Technology Transfer, Springer, vol. 45(1), pages 177-204, February.
    3. Amini, Shahram & Kumar, Raman & Shome, Dilip, 2024. "Product market competition and corporate investment: An empirical analysis," International Review of Economics & Finance, Elsevier, vol. 94(C).
    4. Michi Nishihara, 2014. "Valuation of sequential R&D investment under technological, market, and rival preemption uncertainty," Discussion Papers in Economics and Business 14-13, Osaka University, Graduate School of Economics.
    5. Lin, Shu-Jou & Lee, Ji-Ren, 2011. "Configuring a corporate venturing portfolio to create growth value: Within-portfolio diversity and strategic linkage," Journal of Business Venturing, Elsevier, vol. 26(4), pages 489-503, July.
    6. Irina Berezinets & Kirill Berezkin & Yulia Ilina & Irina Naoumova, 2019. "Board Of Directors As A Factor Of Firm Performance In Innovative Companies," International Journal of Innovation Management (ijim), World Scientific Publishing Co. Pte. Ltd., vol. 23(06), pages 1-26, August.
    7. Divakaruni, Anantha & Jones, Howard, 2021. "Disclosure, Firm Growth, and the JOBS Act," SocArXiv 3zumb, Center for Open Science.
    8. Biao Chen & Jinqiang Yang & Chuanqian Zhang, 2021. "Corporate investment and financing with uncertain growth opportunities," International Review of Finance, International Review of Finance Ltd., vol. 21(3), pages 821-842, September.
    9. Alexeeva-Alexeev, Inna & Mazas-Perez-Oleaga, Cristina, 2024. "Do ICT firms manage R&D differently? Firm-level and macroeconomic effects on corporate R&D investment: Empirical evidence from a multi-countries context," Technological Forecasting and Social Change, Elsevier, vol. 198(C).
    10. Howard Chan & Robert Faff & Philip Gharghori & Yew Ho, 2007. "The relation between R&D intensity and future market returns: does expensing versus capitalization matter?," Review of Quantitative Finance and Accounting, Springer, vol. 29(1), pages 25-51, July.
    11. Cao, Yang & Chen, Yinghui & Zhang, Yuhe, 2022. "Political uncertainty, innovation-driven strategy, and corporate R&D," Research in International Business and Finance, Elsevier, vol. 60(C).
    12. Samaniego Alcántar Ángel, 2010. "Incertidumbre en los proyectos de investigación y desarrollo (I+D). Un estudio de la literatura," Contaduría y Administración, Accounting and Management, vol. 55(3), pages 65-81, septiembr.
    13. Ghazali, Ahmad & Khaw, Karren Lee-Hwei & Zainir, Fauzi Bin, 2022. "Development vs. political views of government ownership: How does it affect investment efficiency?," Finance Research Letters, Elsevier, vol. 48(C).

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