Uncertainty and the Market Valuation of R&D within a Real Options Logic
Strategic Management Journal, Vol. 29, No. 4 , pp. 343 - 361, April 2008
Posted: 29 Apr 2008
The aim of this study is to provide new theoretical insights and empirical evidence on the effect of market and technological uncertainty on the market valuation of a firm's R&D capital. A set of hypotheses is developed adopting a real options logic and tested on a panel dataset of 290 manufacturing firms traded in the UK. Consistently with our theoretical model, we show that market and technological uncertainty have distinct effects on the valuation of R&D investments. The results have several important implications for resource allocation to R&D under uncertainty, which we discuss in the concluding section.
Keywords: R&D, real options, uncertainty, market value
JEL Classification: M21, O32, O33
Suggested Citation: Suggested Citation