The determinants of investor valuation of R&D expenditure in the software industry

C. Catherine Chiang, Yaw M. Mensah

Research output: Contribution to journalArticlepeer-review

15 Scopus citations


This paper examines the cross-sectional variability in the market valuation of R&D expenditures in the pre-packaged computer software industry. Consistent with some prior research, this paper argues that R&D spending is valued heterogeneously by the stock market, and derives hypotheses regarding the determinants of the cross-sectional heterogeneity in the market valuation of R&D. The empirical tests use an extensive database containing product level information of software firms between 1994 and 1998, along with accounting and stock price data of the same period. The test results, consistent with our hypotheses, show that R&D spending is more valuable for firms with larger market shares, higher percentage of technical employees, and those that have diversified into different product categories. The results also indicate that market valuation of R&D spending is a function of product life cycle.

Original languageEnglish (US)
Pages (from-to)293-313
Number of pages21
JournalReview of Quantitative Finance and Accounting
Issue number4
StatePublished - Jun 2004

All Science Journal Classification (ASJC) codes

  • Accounting
  • Business, Management and Accounting(all)
  • Finance


  • Computer software industry
  • Intangible assets valuation
  • R&D


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