The effects of R&D and advertising on firm value: An examination of manufacturing and non-manufacturing firms

Ho, Yew Kee, Keh, Hean Tat and Ong, Jin Mei (2005) The effects of R&D and advertising on firm value: An examination of manufacturing and non-manufacturing firms. IEEE Transactions on Engineering Management, 52 1: 3-14. doi:10.1109/TEM.2004.839943


Author Ho, Yew Kee
Keh, Hean Tat
Ong, Jin Mei
Title The effects of R&D and advertising on firm value: An examination of manufacturing and non-manufacturing firms
Journal name IEEE Transactions on Engineering Management   Check publisher's open access policy
ISSN 0018-9391
Publication date 2005-02
Sub-type Article (original research)
DOI 10.1109/TEM.2004.839943
Volume 52
Issue 1
Start page 3
End page 14
Total pages 12
Place of publication United States
Publisher IEEE
Language eng
Abstract Firm spending on innovation and marketing, as measured by research and development (R&D) and advertising expenses, respectively, are expected to yield positive returns in terms of share price performance. Given resource limitations, firms prioritize the quantum of their investments in R&D and advertising vis-à-vis other investments. We examine the relationship between firm performance and the intensity of their investments in R&D and advertising over an extended period covering 40 years and 15039 firm-years. Our findings are consistent with the resource-based literature. Specifically, we find that intensive investment in R&D contributes positively to the one-year stock market performances of manufacturing firms but not for nonmanufacturing firms. We also find that intensive investment in advertising contributes positively to the one-year stock market performances of nonmanufacturing firms. For the three-year stock market performance, in addition to the findings of the one-year period, we find inconclusive evidence that manufacturing firms benefit from investment in advertising. The interactions of R&D and advertising intensities are insignificant in explaining the stock market performance of the firms except for the three-year horizon for nonmanufacturing firms, which is significantly negative. Consistent with the resource-based literature, this implies that firm performances are diluted when they invest their resources in activities outside their core competence. © 2005 IEEE.
Keyword Advertising
Core competence
Firm performance
Interactions
Manufacturing
Market value
Nonlinear relationship
Nonmanufacturing
Research and development (R&D)
Resource-based view
Q-Index Code C1
Q-Index Status Provisional Code
Institutional Status Unknown

Document type: Journal Article
Sub-type: Article (original research)
Collections: ERA 2012 Admin Only
UQ Business School Publications
 
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Created: Thu, 07 Apr 2011, 12:55:11 EST by Karen Morgan on behalf of UQ Business School