The Effect of Industry Leadership and Diversification on the Relationship between R&D Expenditure and Market Value

Innovation ability is the key factor that drives business growth and determines firms’ competiveness position in the rapidly changing business environment today. Hence, the effects of R&D expenditures issues are widely discussed in prior studies. This article contribute to the literature by examining the impacts of industry leadership and firm di-versification on the R&D effects on market value, using observations from a variety of industries in North America over the period from 2000 to 2014. The industry leadership is defined as the top quartile market share firms in each industry. I find that (1) the market prices less for R&D expenditures of leaders, compared to those of followers; (2) the market prices less for the R&D investment of more diversified firms. These results imply that investors appreciates more for the growth opportunities for followers and for the concentrated R&D resource allocation strategies.