The Effects of Research and Development Expenditure on the Firm Value: Focusing on the Portfolio's Excess Return

Abstract

To analyze the effects of R&D expenditure on the firm value of Korean firms, we classified portfolios based on R&D activity levels. After that, we conducted a time-series analysis to assess excess returns from the portfolios. To carry out such an analysis, an empirical analysis of excess returns in the capital market was performed by using the monthly earning rate of stocks from 2000 to 2013. The purpose of this research is to provide basic data on investment to stakeholders in the capital market by analyzing the effects of R&D on the firm value and to overcome scholarly limitations by offering a new model of analysis. The criteria for classifying the portfolios were based on R&D expenditure levels. The analysis models follow the Fama-French Three-Factor Model and the Carhart Four-Factor Model. The analyses results are as follows. Extrapolating monthly profit rates based on R&D expenditure levels, portfolios with low R&D expenditures showed higher earning rates than those with high R&D expenditures. This suggests that high R&D expenditures did not translate into high earning rates. The investor depreciates the R&D expenditures related profitability and the possibility of success in the market, leading to falls in stock prices and a failure to give a positive effect on the firm value. Our research differs from the previous investigations as we carried out an empirical analysis based on the actual investors' attitudes about R&D expenditures and how these can generate excess earnings. Our research results show that the data related to R&D expenditure are not reflected fully in the market.

Peningkatan firm value melalui research and development dan intangible asset yang dimediasi oleh firm size

“…Mendukung penelitian Gupta et al, (2017) dan Trianti et al, (2021). Tetapi menurut penelitian Sri Murinda, (2021) dan Choi & Kim, (2017) Firm Value juga dipengaruhi oleh kebijakan investasi dalam intangible asset. Aset tak berwujud milik perusahaan dianggap sebagai sebuah sinyal positif bagi investor karena aktiva ini mencerminkan nilai modal intelektual sebuah perusahaan dan investor akan menganggap bahwa perusahaan memiliki prospek yang menjanjikan dimasa yang akan datang, sehingga dapat menaikkan harga saham perusahaan.…”

R&D investment decisions in business groups: Evidence from a natural experiment

“…Lee et al (2017), examining industry R&D intensity, find that technological appropriability is closely associated with corporate R&D expenditures. Other studies have examined corporate R&D expenditures and their outcomes, including firm performance, labor productivity, and export activities (Choi & Kim, 2017; Choo, 2014; Heshmati & Kim, 2011; Kim & Yoo, 2017).…”