Does the Market Value R&D Investment by European Firms? Evidence from a Panel of Manufacturing Firms in France, Germany, and Italy

Abstract

Several studies based on US and UK data have used market value as an indicator of the firm''s expected R&D performance.However, there exist no investigations for the continental countries in the European Union, partly because the analysis is complicated by data availability problems.In this paper we take a first step towards filling this gap using a newly constructed panel dataset of firms that are publicly traded in France, Germany, and Italy.Controlling for either permanent unobserved firm effects or sample selection due to the voluntary nature of R&D disclosure, we find that the relative shadow value of R&D in France and Germany is remarkably similar both to each other and to that in the US or the UK during the same period In contrast, we find that R&D in publicly traded Italian firms is not valued by financial markets on average.However, when we control for the presence of a single large shareholder, we find that both French and Italian firms have high R&D valuations when no single shareholder holds more than one third of the firm, but that R&D is essentially not valued in the other firms.

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