TITLE:
Longitudinal Market Valuation of Unexpectedly Increased R&D Expenditure with the Real Option Logic
AUTHORS:
Hyeri Jung, Jaeho Lee
KEYWORDS:
R&D Valuation, Real Option, Technology Uncertainty
JOURNAL NAME:
Open Journal of Business and Management,
Vol.9 No.5,
September
28,
2021
ABSTRACT: This
paper examines how the real option value of R&D expenditure in financial
market changes as time proceeds. It examines the relations between the R&D
capital and the firm value for 4 years from the time a firm increases its
R&D expenditure unexpectedly. The results show that the financial market
evaluates the unexpected increased R&D with real option logic. We find that
the financial market takes account of the market uncertainty and the technology
uncertainty of R&D for the valuation of firms. These effects appear
significantly right after the R&D capital increases unexpectedly. However, the lasting period of them
is shorter than 1 year. The operational performance doesn’t have any relation
with the firm value in our analysis.