How does the financial environment affect the stock market valuation of R&D spending?

G. Geoffrey Booth; Juha-Pekka Junttila; Juha Kallunki; Markku Rahiala; Petri Sahlström

doi:10.1016/j.jfi.2005.03.003

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Journal of Financial Intermediation Vol. 15 No. 2 2006

How does the financial environment affect the stock market valuation of R&D spending?

G. Geoffrey Booth¹; Juha-Pekka Junttila²; Juha Kallunki²; Markku Rahiala²; Petri Sahlström³

¹ Michigan State University · ² University of Oulu · ³ University of Vaasa

Abstract

This paper investigates the role of the financial environment in the stock market valuation of research and development (R&D) spending by firms. We examine the importance of equity financing relative to bank financing and the importance of both relative to the size of the economy on the stock market valuation of R&D expenditures. Empirical analysis of the Compustat Global Vantage firm-level data indicates that, the more market-based a financial system is, the more R&D expenditures are valued by the stock market. The degree of financial development does not appear to be important. Our results remain materially unchanged after controlling for numerous firm and country differences.

DOI: 10.1016/j.jfi.2005.03.003
Volume: 15
Issue: 2
Pages: 197-214
Language: en
Sources: openalex crossref bibtex:phds-export.bib

How does the financial environment affect the stock market valuation of R&D spending?

Abstract

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