Do Effective Boards and Strong Corporate Control Markets Enhance or Depress Market Valuation of R&D?

47 Pages Posted: 18 Mar 2009

See all articles by Jamie

Jamie

Hong Kong Polytechnic University

Shimin Chen

China Europe International Business School (CEIBS)

Bin Srinidhi

University of Texas at Arlington - Department of Accounting; City University of Hong Kong (CityUHK) - Department of Accountancy

Lixin (Nancy) Su

Department of Accountancy, Lingnan University

Date Written: March 17, 2009

Abstract

This study examines whether corporate governance enhances or depresses market valuation of research and development (R&D) investments. We find that (i) boards that are more independent and have more multiple directorships per outside director are associated with higher R&D valuation; (ii) less anti-takeover provisions (market control mechanism) are also associated with higher R&D valuation, and (iii) effective board governance (market control mechanism) is associated with higher R&D valuation only in the presence of weak market control mechanism (board governance). Our results provide evidence that both internal and external governance mechanisms enhance R&D valuation, but they act as substitutes in doing so.

Keywords: Corporate Governance, Research and Development, Market Valuation

JEL Classification: G12, O32

Suggested Citation

Tong, Yixing and Chen, Shimin and Srinidhi, Bin and Su, Lixin (Nancy), Do Effective Boards and Strong Corporate Control Markets Enhance or Depress Market Valuation of R&D? (March 17, 2009). Available at SSRN: https://ssrn.com/abstract=1361509 or http://dx.doi.org/10.2139/ssrn.1361509

Yixing Tong

Hong Kong Polytechnic University ( email )

Hung Hom, Kowloon
Hong Kong

Shimin Chen

China Europe International Business School (CEIBS) ( email )

Shanghai-Hongfeng Road
Shanghai 201206
Shanghai 201206
China

Bin Srinidhi (Contact Author)

University of Texas at Arlington - Department of Accounting ( email )

Arlington, TX 76013
United States

City University of Hong Kong (CityUHK) - Department of Accountancy ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
China

Lixin (Nancy) Su

Department of Accountancy, Lingnan University ( email )

8 Castle Peak Road
Lingnan University
Hong Kong, New Territories
China

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