The Market Value of R&D in Weak Innovation Regimes: Evidence from India

Hall, Bronwyn H.; Kanwar, Sunil

doi:10.1515/bejeap-2016-0103

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The Market Value of R&D in Weak Innovation Regimes: Evidence from India

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Hall, Bronwyn H.
MPI for Innovation and Competition, Max Planck Society;

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Hall, B. H., & Kanwar, S. (2017). The Market Value of R&D in Weak Innovation Regimes: Evidence from India. The B.E. Journal of Economic Analysis and Policy, 17(1). doi:10.1515/bejeap-2016-0103.

Cite as: https://hdl.handle.net/21.11116/0000-0001-34ED-A

Abstract

We revisit the relationship between market value and innovation in the context of manufacturing firms in a developing country, using data for Indian firms from 2001 through 2010. Surprisingly, we find that financial markets value the R&D investment of Indian firms the same or higher than it values such investment in developed economies such as the US and European countries, suggesting some degree of underinvestment. The paper explores the use of a proxy for the option value of R&D and finds that this can account for a very small part of the R&D valuation (about 10 per cent). We also find that the market value‐R&D relationship does not vary significantly across industry groups, although these results are rather imprecise.