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Sustainability 2018, 10(11), 4133; (registering DOI)

R&D Investments and Firm Value: Evidence from China

Bang College of Business, KIMEP University, Abay Ave 2, Almaty 050010, Kazakhstan
Strategy Center for R&D Coordination, Korea Institute of S&T Evaluation and Planning, 60 Mabang-ro Seocho-gu, Seoul 06775, Korea
Authors to whom correspondence should be addressed.
Received: 2 October 2018 / Revised: 3 November 2018 / Accepted: 6 November 2018 / Published: 10 November 2018
(This article belongs to the Section Economic, Business and Management Aspects of Sustainability)
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This study examines whether R&D investments are non-linearly related to firm value. Using a sample of 563 Chinese listed firms between 2005 and 2013, we find that R&D investments have an inverted U-shaped relationship with firm value. This finding indicates that as R&D investments increase, firm value increases to a certain level and then decreases. We further find the presence of an inverted U-shaped relationship in firms with low state ownership. However, we find no evidence of a non-linear relationship in firms with high state ownership. These results suggest that the inverted U-shaped relationship is more pronounced for firms with low state ownership than for firms with high state ownership. Moreover, we find that there is an inverted U-shaped relationship between R&D investments and firm value in firms with high growth opportunities. In contrast, for firms with low growth opportunities, their relationship has a U-shaped pattern. These results are robust to robust standard errors clustered at the firm level, controlling for industry fixed effects, and omitting variable biases. Overall, our empirical evidence extends and complements the literature on the R&D investments–firm value relationship by considering their non-linear pattern. This study provides important implications for stakeholders, such as investors, policy makers, standard-setters, state owners, and regulators. Specifically, our findings can be useful to policy makers who pursue long-term performance objectives. View Full-Text
Keywords: R&D investments; firm value; non-linearity; China R&D investments; firm value; non-linearity; China
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited (CC BY 4.0).

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Kim, W.S.; Park, K.; Lee, S.H.; Kim, H. R&D Investments and Firm Value: Evidence from China. Sustainability 2018, 10, 4133.

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