| Author: | Tong, Yixing |
| Title: | Corporate governance and the valuation of R&D |
| Degree: | Ph.D. |
| Year: | 2010 |
| Subject: | Hong Kong Polytechnic University -- Dissertations Business -- Research Research, Industrial Corporate governance |
| Department: | School of Accounting and Finance |
| Pages: | vii, 179 leaves : ill. ; 30 cm. |
| Language: | English |
| Abstract: | The dissertation studies how corporate governance mechanisms influence the valuation of corporate research and development (R&D) investment. First, I examine how internal and external corporate governance affect the equity holders' valuation of R&D. Using a sample of U.S. firms from 1998 to 2006, I find that: (1) boards that are more independent and whose independent directors have more outside directorships are associated with higher R&D valuation; (2) less anti-takeover provisions (market control mechanism) are also associated with higher R&D valuation; and (3) effective board governance (market control mechanism) is associated with higher R&D valuation only in the presence of weak market control mechanism (board governance). My results provide evidence indicating that both internal and external governance enhance R&D valuation, but they substitute in doing so. Next, I focus on the effect of corporate board to enhance the R&D valuation. Effective corporate governance can enhance the market valuation of R&D either by increasing the expected future cash flows (numerator effect), by decreasing the cost of equity (denominator effect), or by both. Examining a sample of U.S. firms, I provide evidence suggesting that: (1) R&D expenditures are positively associated with expected future cash flows, and this positive association is higher with more effective corporate boards; and (2) firms with more R&D expenditures enjoy a lower cost of equity, and this relationship is stronger when corporate boards are more effective. My findings suggest that boards enhance R&D valuation through both increasing R&D-induced expected future cash flows and decreasing R&D-related cost of equity. Finally, I turn my focus from equity holders to debt holders. I first examine the relationship between R&D investments and cost of debt and then further explore boards' potential influence on it. I find that firms with more R&D expenditures are associated with lower credit ratings (a higher cost of debt), and further, boards that are more independent and whose independent directors have more outside directorships are associated with a less pronounced negative relationship between R&D expenditures and credit ratings. |
| Rights: | All rights reserved |
| Access: | open access |
Files in This Item:
| File | Description | Size | Format | |
|---|---|---|---|---|
| b23930573.pdf | For All Users | 2.23 MB | Adobe PDF | View/Open |
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