Does Market Ratify The Value Of R&D Expenditure?

Technology innovation is focused by society. And R&D is a lifeline for corporations. The relationship between corporations and market is so close that the verification from market would influence much to R&D spending in the future.This paper samples the listed firms which revealed R&D expenditure in the financial report annotation during the period of 2002-2005, and constructs two multiple linear regression models to analyze separately whether product market and stock market ratify the value of R&D expenditure. The empirical research result shows that there is a significant positive relation between gross profit rate of the following year and R&D intensity. It indicates that consumers in the product market ratify the value of R&D expenditure. There is a significant difference between high-tech and non-high-tech firms'gross profit rate, indicating that the efficiency of the two types of firms is quite different. But to the different ownerships of the first shareholder there exists no difference. In the stock market, there is also a lag effect. Investors are cautious to ratify the value of R&D expenditure. They're willing to pay a high price for the future performance only after the confirmation of the outstanding achievements by those firms spending a lot on R&D. At this time, the value of R&D expenditure is ratified by stock market.