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| Type | Master's Thesis |
| Scope | Discipline-based scholarship |
| Title | Impact of R&D Expenditures on the Valuation of US and European Comapnies |
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| Institution | University of Zurich |
| Faculty | Faculty of Economics, Business Administration and Information Technology |
| Number of Pages | 57 |
| Date | 2016 |
| Abstract Text | United States dominates the list of top 500 global companies by market capitalization, which is considerably higher than the joint market capitalization of all the European companies. The same situation holds for R&D investment rates. This work presents the first known attempt to explain this phenomenon by focusing on R&D investments as a driver of company value. There is a body of literature demonstrating positive influence of inventive activities on value of a firm. Empirical studies show a high variation in R&D coefficients between countries, which are believed to be caused by their inherent characteristics, such as financial and legal systems and corporate governance mechanisms. Using a recent panel dataset of US and European publicly traded companies for the period 2010-2014 and controlling for unobserved firm and time specific effects, positive influence of R&D expenditures on a firm market value is demonstrated for European and US companies, while R&D expenditures in Switzerland show a negative effect. However, this influence is found to be higher for European companies than for US, implying that R&D efficiency does not explain the higher stock market capitalization of the United States. Concerning the magnitude of the coefficients, which are found to be lower than a unit, indicates that companies do not invest optimal amounts in R&D. The effects of company size and country’s legal origin are also examined in this work. The corresponding results are consistent with the main finding of this study. R&D investments by small (large) European companies are valued higher by the market than by small (large) US firms. Generally, R&D efficiency in generating value is proven to be greater for small companies than for large ones. Previous research shows evidence that companies in the countries with the common law legal system, such as the US, are valued higher than in the countries with the civil law legal system, such as Continental Europe. However, according to the quantitative results of this thesis, this effect does not hold for the R&D impact on the company market value. R&D expenditures are proven to have a lower impact on a firm’s value in companies from common law legal origin countries, where US companies represent the majority of the analyzed sample. The findings of this thesis are of practical interest to firms, investors and public policy makers, who should understand the role of R&D activities for their companies and countries to achieve better company performance and higher economic growth. |
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