Abstract

This article explores the relationship between stockholder value changes and corporate research and development (RandD) spending in the computer industry. Researchers attempted to tie RandD expenditures and its various measurable effects to future results of the firms within an industry, with mixed results. They identify a positive, short-term relationship between stockholder share price movements and firm announcements of plans to increase RandD expenditures. They also show that industries with higher RandD intensities grow faster than those with low RandD intensities. However, little research is available that effectively relates RandD expenditures to future share price performance of the firms within an industry over a period of years. In this study, computer firm RandD intensity is correlated to future stockholder compound annual returns over both 1- and 5-year periods, based on research activity and financial results from 1992 to 1997. Results indicate a statistically significant negative relationship between routine RandD spending intensity and actual stockholder returns over both the 1- and 5-year periods studied. This work suggests there are diminishing returns to increased RandD spending in the computer industry and that computer firms are overspending on RandD at the expense of their stockholders. © 2001 Taylor & Francis.

Department(s)

Engineering Management and Systems Engineering

International Standard Serial Number (ISSN)

1042-9247

Document Type

Article - Journal

Document Version

Citation

File Type

text

Language(s)

English

Rights

© 2024 Taylor and Francis Group; Taylor and Francis, All rights reserved.

Publication Date

01 Jan 2001

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