Abstract
This paper attempts to measure the relationship between research and development (R&D) expenditure and market value of the firm. Number of studies has already been conducted in U.S., U.K., France, Germany, Canada, Italy etc. to explore the relationship between R&D and market value. Market value of the equity of firm reflects the value of the firm's tangible and intangible assets. The objective of this paper is to investigate whether market places a positive value on reported R&D spending of the firm. The focus on market value of the firm as a measure of the success of its innovative activity derives from the notion that R&D expenditure creates intangible assets for the firm. Sample consists of manufacturing companies publicly traded in India. Data for different variables namely market value of firm, book value of tangible assets and intangible assets, value of research and development expenditure, value of sales are analysed by applying regression analysis. Results shows that one unit increase in research and development expenditure ratio leads to 9. 9 percent increase in market value of the firm. Results are significant at one percent level.
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