Pan Pacific Symposium Conference Proceedings


IMPACT OF RESEARCH AND DEVELOPMENT EFFORTS ON STOCK EXCHANGE EXPECTATIONS -STUDY ON SAMPLE OF CORPORATIONS

Author: Zoltán B. Farkas
Company: KFKI-ISYS Ltd
Date Published: 2/2/1999   Conference: Pan Pacific Symposium


Abstract: MOTIVATION From the theoretical point of view, according to the opinion of the authors, developmental attributes of the leading industries of the now-ongoing information paradigm are important because they can probably be generalized for the characteristic knowledge based branches of the economic environment of the coming decades. The relatively high age of these industries and the inevitable significance in the present are the main considerations that support the previous statement.

The subject of the present study is a simple analysis to be carried out on the main economic indicators of the firms involved with these industries. This paper presents an intermediate state of research since advanvcements are planned in methodology. The results are, however, already interesting, the authors have not found similar ones in the international literature.

In addition to the theoretical concern, the practical significance of the appreciation of research expenditures by the capital markets have severe impact of the macro level international competitiveness. First, in the English speaking countries the most of financial resources for technical development is provided by venture capitalists. After financing a start-up, launching R&D projects and/or products the venture capital provider may wish to regain the liquid assets with high returns through selling the now obviously promising firm. The ideal scene for the exit is the active stock. Second, in other European and Far East countries where the govermental (or supra governmental organization) involvement with financing R&D activities is essential, the competitiveness depends at a large extent on the decisions makers of the companies which finally transform the innovation into marketable product, or service.

Numerous papers have been written on the significance of innovation and on industry and comany level conditions that are favorable for innovation. Dosi [1988] found that company R&D expenditures are stable. Scherer [1982] demonstrated a strong dynamic relationship between innovation activities and supplier activities in the industries with high technological potential. According to Pavitt [1984] the in the case of science based companies the innovation activity increases with company size, the same can not be observed in the industries dominated by supplier (for strategic classification see Porter [1980]), meanwhile in production oriented industries the return of R&D activity stems not from novel poducts but from process improvements.

The financial literature halts at the demonstration of the fact that investments as well as R&D activities improve the value of a company compared to book value. [Chan, Martin, Kensinger 1990], [Zantout, Tsetsekos 1994] [Hall 1993] [Chen, Nai, Grundy, Stambaugh 1990] On the other hand both industry level analyses and innovation studies do not touch the stock exchange evaluation.

The subject of the study is the American industry. That was the largest market of the world under unified regulation in the examined period (1971-1996) thus we assume that the economic competition took place in this country in its purest form. According to experts the flexibility of the American economy, that manifests in capital attracting capability and labor mobility, is unique.

The source of data are the company lists of Business Week and Electronics Business. The aggregate examinations cover the period of 1975-1996, the company level ones have been carried out on 1971-1996 data.



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