The effects R&D expenditures on the market value in the telecommunication industry - Evidence from North America.

Abstract

The linkage between R&D spending and market value of firms has been continuously debated from time to time. Many studies have proved that there is a positive impact. Meanwhile, other studies have proved that it depends on which sectors in the economy, some sectors have a strongly positive effect but the others have a weak effect. This paper estimates the relationship between R&D expenditures and market price in the telecommunication sector. First, by using the COMPUSTAT annual industrials of North America in period 1950-2005, we find a strong evidence of the positive relationship. Second, we implement another test to investigate some particular characteristics of the telecommunication sector during the process of liberalization telecommunication markets as well as the emerging internet and developing Information Technology era. Overall, our result is consistent with some previous studies. Third, we expand the model and find that price per share is positively associated with other variables including total assets per share and earning per share.