The value relevance of research and development expenditures: a comparative analysis of Korean, Japanese, Chinese, and US manufacturers

Abstract

Research and development (R&D) expenditures are generally thought to increase a firm's market value. This study examines the nonlinear value relevance of R&D expenditures from 2006 to 2015 for manufacturers listed on capital markets in Korea, the USA, Japan, and China. In this regard, the study uses a nonlinear validation method based on an analytical model that adds R&D investment variables to a corporate valuation model. The results indicate that Korean and Japanese firms experience an increase in corporate value when they make R&D expenditures but if the firms exceed their R&D expenditure limits, corporate value falls. In US and Chinese firms, R&D expenditures prompt a dramatic rise in corporate value when such expenditures are initially set to exceed certain limits, although R&D activities reduce corporate value in their early stages. Such findings have practical relevance for international investment decisions.