Preface
I
n this monograph, the financial determinants of corporate research and
development (R&D) and the impact of these expenditures on stockholder
wealth are examined. The reader is introduced to financial statements and
ratios for decision making. A discussion of the sources and uses of funds
analysis leads to an econometric analysis of the interdependencies among
the firm’s financial decisions, including the dividend, capital investment,
R&D, and new debt issuance decisions. The establishment of the R&D de-
cision as a financial decision leads one to ask how the marketplace values
and assesses the firm’s R&D expenditures. A multifactor risk model analy-
sis allows one to establish a statistically significant relationship between
R&D expenditures and increases in stockholder wealth. R&D enhances
stockholder wealth, particularly for larger capitalized firms.
The author would like to thank several co-authors of studies that serve
as the basis of several chapters in this text: Al Bean, formerly of Lehigh Uni-
versity, and Steven Andrews, of the Bureau of the Census, worked with the
author on econometric modeling of the R&D decision; Andrew Mark, of
GlobeFlex Capital Management, worked with the author on the R&D and
stockholder wealth analysis; John Blin and Steve Bender of APT, a Wall Street
firm specializing in risk management; Bernell Stone, of Brigham Young Uni-
versity; and Mustafa Gultekin, of the University of North Carolina.
The author wishes to thank his wife, Julie, for her support, and his chil-
dren, Richard, now off at college, Katherine, and Stephanie, for their sup-
port. The author acknowledges his parents, John and Dorothy, for their
loving support. The author worked many weekend hours on this project,
often chasing the kids off the computer on Sunday mornings and evenings
to complete the project.