Innovation, Tangible and Intangible Investments and the Value of Spanish Firms

Why is R&D spending so low in Spanish firms? One possible answer may lie in a small contribution of innovative investments to value creation at the firm level. When pulling together complementary sources of spending data and related evidence to measure these investments, we observe that R&D is low for international standards, but overall intangible investment seems adequate. Data from the Central de Balances are then used to assess the effect of R&D and other innovative investments on the value of Spanish firms. The results suggest that intangible investments have a positive impact on market values which is more substantial for innovative sectors, and this is also the case for R&D capital. Such a positive impact is influenced by the size of the firm and its presence in the stock market. In fact, an alternative explanation to low R&D intensity could be found in the small fraction of firms publicly traded in the stock market in Spain, as far as equity holders tend to value intangible assets more than bond holders. Consequently, promoting a more active role of market valuations might be a promising policy.