In this monograph, the financial determinants of corporate research and development (R&D) and the impact of these expenditures on stockholder wealth are examined. The reader is introduced to financial statements and ratios for decision making.
A discussion of the sources and uses of funds analysis leads to an econometric analysis of the interdependencies among the firm’s financial decisions, including the dividend, capital investment, R&D, and new debt issuance decisions.
The establishment of the R&D decision as a financial decision lead one to ask how the marketplace values and assesses the firm’s R&D expenditures.
A multifactor risk model analysis allows one to establish a statistically significant relationship between R&D expenditures and increases in stockholder wealth. R&D enhances stockholder wealth, particularly for larger capitalized firms.
The author would like to thank several co-authors of studies that serve as the basis of several chapters in this text: Al Bean, formerly of Lehigh University, and Steven Andrews, of the Bureau of the Census, worked with the author on econometric modeling of the R&D decision; Andrew Mark, of Globe Flex Capital Management, worked with the author on the R&D and stockholder wealth analysis; John Blin and Steve Bender of APT, a Wall Street firm specializing in risk management; Bernell Stone, of Brigham Young University; and Mustafa Gultekin, of the University of North Carolina.
The author wishes to thank his wife, Julie, for her support, and his children, Richard, now off at college, Katherine, and Stephanie, for their support. The author acknowledges his parents, John and Dorothy, for their loving support.
The author worked many weekend hours on this project,
often chasing the kids off the computer on Sunday mornings and evenings
to complete the project.
