How Do Country‐Level Governance Characteristics Impact the Relationship between R&D and Firm Value?

12 Pages Posted: 29 Oct 2015

See all articles by Julio Pindado

Julio Pindado

University of Salamanca - Administration and Business Economics

Valdoceu de Queiroz

Ministry of Finance, Brazil

Chabela de la Torre

University of Salamanca - Administration and Business Economics

Date Written: November 2015

Abstract

This article addresses the question of how country‐level governance characteristics moderate the market valuation of research and development (R&D). Using a valuation model and panel data from companies in the European Union, United States, and Japan, we find that effective corporate governance allows the market to better assess a firm's R&D investments. This finding is the conjunction with the effect of the legal system, the financial system, and mechanisms of control. First, as effectiveness of investor protection increases, the market valuation of R&D projects also increases. Second, more developed financial systems do a better job assessing R&D. Third, effective control mechanisms reinforce the positive effect of R&D on a firm's market value. In sum, our findings shed light on how policymakers can increase the benefits from firms' R&D spending and thus foster economic growth and social welfare using these country‐level governance characteristics.

Suggested Citation

Pindado, Julio and de Queiroz, Valdoceu and de la Torre, Chabela, How Do Country‐Level Governance Characteristics Impact the Relationship between R&D and Firm Value? (November 2015). R&D Management, Vol. 45, Issue 5, pp. 515-526, 2015. Available at SSRN: https://ssrn.com/abstract=2682811 or http://dx.doi.org/10.1111/radm.12115

Julio Pindado (Contact Author)

University of Salamanca - Administration and Business Economics ( email )

Campus Miguel de Unamuno
Salamanca, ES-37007
Spain
+34 923 294640 (Phone)
+34 923 294715 (Fax)

Valdoceu De Queiroz

Ministry of Finance, Brazil ( email )

Rio de Janeiro
Brazil

Chabela De la Torre

University of Salamanca - Administration and Business Economics ( email )

Campus Miguel de Unamuno
Salamanca, ES-37007
Spain

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