This chapter provides evidence that current research and development (R&D)
expenditures tend to have consistently large and positive influences on the
market value of the firm. Like other operating information that helps tech
stock investors form appropriate expectations concerning the size and vari-
ability of future cash flows, current R&D spending decisions appear to give
investors useful insight concerning the firm’s future economic performance.
As a result, spending on R&D can be viewed as a form of investment in an
intangible asset with predictably positive effects on future revenues, cash
flows, and profits.
While significant market-value effects of R&D are generally apparent
across the broad scope of the U.S. corporate environment, such aggregate evi-
dence has the potential to obscure meaningful differences across firm size
classes and industry groups. Consistent with the fact that only a handful of
firms is responsible for much corporate-sponsored R&D spending in the United
States, Hirschey (2003a) finds that stock-price effects of R&D are clearly
apparent in the case of large domestic corporations. Consistent with previous
findings reported by Chauvin and Hirschey (1993) for the late-1980s, this study
reports that the stock-price effects of R&D were somewhat greater for larger as
opposed to smaller firms in both manufacturing and nonmanufacturing sectors

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