R&D and dividend payments as determinants of corporate value in the UK: Empirical evidence after controlling for endogeneity
Jannine Poletti Hughes
Purpose – The purpose of this research is to expand on the available literature that suggests a positive effect of R&D activities and dividend payments on firms' value by considering three additional aspects that differ from previous research. Design/methodology/approach – The analysis of the valuation model is performed in a panel dataset of UK firms from 1994 to 2005 (8,559 observations). The methodology consists in applying General Method of Moments (GMM) to control for endogeneity, firm-specific effects and time effects. Findings – The findings indicate that the use of GMM in the valuation model is adequate, given the statistical properties of the data. R&D stock is shown to be positively associated with corporate value, but its impact is lower than for R&D expenditure. Both special dividends and ordinary dividends are found to be positively associated with corporate value, supporting the signalling hypothesis which presupposes that managers might use dividends as a signal about companies' future profitability. Originality/value – This paper contributes to the empirical literature of corporate finance, not only with respect to the effect of special dividends and R&D stock on corporate value, as opposed to R&D expenditure and ordinary dividends (as in previous studies for the UK), but also in confirming that, after endogeneity has been controlled, there is a significant and positive effect of these variables but with a different impact.
Dividends, Research and development, United Kingdom
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