Impact of ICT Sector Research and De velopment Expenditure on the Market Capitalization in the US, the EU and China

Abstract

Purpose: Due to the growing global role of enterprises from the information and communication technology sector from the leading regions of the USA, EU and China in the industry, the author’s research goal was to try to identify factors influencing the value of listed enterprises understood as its stock exchange capitalization. For the purpose, research was carried out on the impact of a group of twenty-six variables on the company’s market capitalization, among which the most important conclusions concern the impact of seven variables, i.e. revenues, research and development expenses, earnings before interest, taxes, depreciation and amortization (EBITDA), earnings before interest and taxes (EBIT), total equity, total assets, total revenues and dividend rate. Design/Methodology/Approach: The study used research methods in the form of a random effects model and a fixed effects model, and then used the Hausmann test to verify which of the models is better suited to establishing the relationship between the selected independent variables and the dependent variable in the form of the stock market capitalization of companies from the ICT sector. Findings: It was found that the impact of equity or the level of revenues on market capitalization is much smaller than in the case of research and development expenses and that the issue of depreciation of assets is an important factor in the market valuation of enterprises from the ICT sector. Additionally, the level of assets and equity has, although limited, impact on the market valuation of the company, regardless of the region in which an entity operates. Revenues are important from a regionalization perspective – company’s market capitalization is the largest in the case of the ICT services subsector in China. There is no similar relationship among manufacturers of ICT devices operating in all three regions. Research limitations/Implications: Due to the fact that the COVID-19 pandemic and the global economic slowdown are important factors affecting the ICT sector, further research on the value of ICT enterprises should take the aspects into account.