Do Effective Boards and Strong Corporate Control Markets Enhance or Depress Market Valuation of R&D?
47 Pages Posted: 18 Mar 2009
Date Written: March 17, 2009
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: Suggested Citation