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Market value of the firms and R&D investment: Theoretical overview and empirical estimation for the panel of countries

Author

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  • Josheski, Dushko
  • Magdinceva-Sopova, Marija
Abstract
The aim of this paper is to investigate the issue of R&D investment and the market value of the firm. This idea dating back from Arrow paper, later developed by Paul Romer but in the area of economic growth. Zvi Griliches (1979), first introduced the production function, which later would be used in a vast literature from this area (Market value of the firms and R&D investment). In the theoretical section of this paper we are describing Tobin’s original model, and Abel’s (1984) model, this models relates Tobin’s quotient with intangible assets of the company. In the empirical part we develop cross-section time series model (Feasible Generalized Least Squares Model), for a panel of countries in Europe including UK and Turkey, in total of 11 panels. Later we test that model by estimating the marginal effects of R&D investment with Tobin’s q on a small economy such as R. Macedonia. The results exert positive and statistically significant relationship between market value of the firms and R&D investment.

Suggested Citation

  • Josheski, Dushko & Magdinceva-Sopova, Marija, 2013. "Market value of the firms and R&D investment: Theoretical overview and empirical estimation for the panel of countries," MPRA Paper 44094, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:44094
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    References listed on IDEAS

    as
    1. Cockburn, Iain & Griliches, Zvi, 1988. "Industry Effects and Appropriability Measures in the Stock Market's Valuation of R&D and Patents," American Economic Review, American Economic Association, vol. 78(2), pages 419-423, May.
    2. Bronwyn H. Hall & Grid Thoma & Salvatore Torrisi, 2006. "The market value of patents and R&D: Evidence from European firms," KITeS Working Papers 186, KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy, revised Nov 2006.
    3. Megna, Pamela & Klock, Mark, 1993. "The Impact on Intangible Capital on Tobin's q in the Semiconductor Industry," American Economic Review, American Economic Association, vol. 83(2), pages 265-269, May.
    4. Hall, Bronwyn H. & Lerner, Josh, 2010. "The Financing of R&D and Innovation," Handbook of the Economics of Innovation, in: Bronwyn H. Hall & Nathan Rosenberg (ed.), Handbook of the Economics of Innovation, edition 1, volume 1, chapter 0, pages 609-639, Elsevier.
    5. Zvi Griliches, 1998. "Issues in Assessing the Contribution of Research and Development to Productivity Growth," NBER Chapters, in: R&D and Productivity: The Econometric Evidence, pages 17-45, National Bureau of Economic Research, Inc.
    6. K. J. Arrow, 1971. "The Economic Implications of Learning by Doing," Palgrave Macmillan Books, in: F. H. Hahn (ed.), Readings in the Theory of Growth, chapter 11, pages 131-149, Palgrave Macmillan.
    7. George A. Akerlof, 2007. "The Missing Motivation in Macroeconomics," American Economic Review, American Economic Association, vol. 97(1), pages 5-36, March.
    8. Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(1), pages 15-29, February.
    9. Missaka Warusawitharana, 2015. "Research and development, profits, and firm value: A structural estimation," Quantitative Economics, Econometric Society, vol. 6(2), pages 531-565, July.
    10. Connolly, Robert A & Hirschey, Mark, 1984. "R&D, Market Structure, and Profits: A Value-Based Approach," The Review of Economics and Statistics, MIT Press, vol. 66(4), pages 682-686, November.
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    Cited by:

    1. Shih-Yung Wei & Li-Wei Lin & Su-Rong Yan & Yun-Han Zhang, 2020. "The Influence of Company-specific Assets on Corporate Performance Interaction," International Journal of Economics and Financial Issues, Econjournals, vol. 10(5), pages 49-69.
    2. 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).

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    More about this item

    Keywords

    Tobin’s q; R&D; knowledge absorption;
    All these keywords.

    JEL classification:

    • D46 - Microeconomics - - Market Structure, Pricing, and Design - - - Value Theory
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing

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