Research and Development Projects Upon Real Options View

Abstract

We investigate the importance of R&D expenditures for SMC (small and medium companies) and for Blue Chips, focusing on the existence of relation between Research and Development (R&D) option value and some variables such as relative probability of innovation, level of capital expenditures, expected innovation rents, expenditures with respect to the implementation of new technologies, proportions of money, proportions of indebtedness, operating cash flows, patents of affiliated companies, numbers of workers, market concentration and the efficiency of work. Empirical analysis also includes R&D projects valuation worksheet based upon the competition duopoly model that we applied to Brazilian Embraer and Canadian Bombardier. Embraer and Bombardier are 3rd and 4th largest suppliers of commercial aircrafts. These are main rival competitors in the segment of small commuter planes. Our main objective was to study changes of R&D projects performance when alterations of environmental factors are simulated. Basically, we observed significant difference between SMCs and Blue Chips. SMC tend to start new R&D projects on their own while Blue Chips buy other companies that already have access to new technologies. Moreover, in the group of small companies, R&D costs are significantly positive, while Blue Chips show opposite results as R&D costs are negative and statistically significant in this group. In addition, R&D projects and patents possessed by investigated companies affect positively R&D projects valuation. Future growth, which forms part of the value of a company, depends on the number of patents pertaining to companies and newly started R&D projects which subsequently will become patents possessed by those companies.

DOI: http://dx.doi.org/10.5755/j01.ee.25.3.2737