The Effect of R&D Investments on Market Value of Firms: Evidence from the U.S., Germany, and Japan

This paper examines the effect of R&D investments on the market value of firms in the U.S., Germany, and Japan. Specially, this paper investigates the empirical validity of the widely‐held economic views that suggest that the stock‐market oriented U.S. financial system leads to more corporate myopia and hence to less longer‐term investments such as R&D than the bank‐oriented German and Japanese firms. Findings include that U.S. firms invest in R&D as much as their counterparts in Japan and Germany; the market places a significant and positive value on R&D investments by U.S. firms, though lower than German and Japanese firms; and there are notable differences among the three nations with respect to several other variables. The overall evidence lends little support to the corporate myopia view on U.S. firms.