UK EVIDENCE ON THE MARKET VALUATION OF RESEARCH AND DEVELOPMENT EXPENDITURES

It is estimated that a number of annual cross-sectional valuation models for UK Official List firms reporting positive research and development expenditures. The key features of the valuation model are the expression of the excess of market value over book value as a linear function of current resid...

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Bibliographic Details
Published in:Journal of business finance & accounting 1996-03, Vol.23 (2), p.191-216
Main Authors: Green, J. Peter, Stark, Andrew W., Thomas, Hardy M.
Format: Article
Language:English
Subjects:
Accounting
Business expenses
Business valuation
Economic value added
Market value
Mathematical analysis
Public expenditure
R&D
Research & development
Research & development expenditures
Research and development
Residuals
Stock exchange
Time series
United Kingdom
Valuation
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Summary:It is estimated that a number of annual cross-sectional valuation models for UK Official List firms reporting positive research and development expenditures. The key features of the valuation model are the expression of the excess of market value over book value as a linear function of current residual income (capturing the PV of future residual incomes for assets in place) and current research and development expenditures (capturing the market valuation of research and development expenditures that are yet to have an impact on earnings). The conclusions that can be drawn from the study are: 1. The impact of residual income on market value seems strong. 2. There is little evidence that the UK stock market totally fails to recognize the valuation-relevance of research and development expenditures.
ISSN:0306-686X
1468-5957
DOI:10.1111/j.1468-5957.1996.tb00906.x