Corporate financial policy and R & D management

Completely updated and expanded, this edition examines the relationship between managing research development (R&D) and sustaining sound financial policy. Through extensive fieldwork and consulting, the author demonstrates how to balance and manage R&D efforts, capital investment, and new debt financing decisions. He also offers a framework for understanding the interdependence between these elements and tools that include financial modeling techniques for determining resource allocation.

Author Notes

John B. Guerard, Jr. is a faculty member at Rutgers University and a financial consultant to several financial institutions and money managers, including serving on the Virtual Research team of GlobeFlex Capital Management, Inc.

Preface	p. ix
About the Author	p. xi
Chapter 1 Corporate Financial Policy and R&D Management	p. 1
Chapter 2 An Introduction to Financial Statements	p. 3
The Balance Sheet	p. 3
Assets	p. 4
Liabilities and Capital	p. 10
Current Liabilities	p. 10
Long-Term Debt	p. 11
Capital Section of the Balance Sheet	p. 12
Book Value of Common Stock	p. 14
Consolidated Balance Sheets	p. 14
The Operating Statements: The Income Statement and Sources and Uses of Funds	p. 18
Sources and Uses of Funds	p. 24
Chapter 3 Ratio Analysis	p. 31
Ratio Analysis and the Firm's Perceived Financial Health	p. 31
Current Analysis Ratios	p. 32
Leverage Ratio	p. 33
Sales Efficiency Ratio	p. 34
Profitability Ratios	p. 34
Financial Ratios and the Perceived Financial Health of Firms	p. 35
Time Series of Ratios in the United States, 1970-2003	p. 37
Limitations of Ratio Analysis	p. 38
Chapter 4 Debt, Equity, Financial Structure, and the Investment Decision	p. 41
Definition of Leverage-Profits and Financial Risk	p. 42
The Pure Theory of the Optimal Financial Structure	p. 44
Modigliani and Miller-Constant Capital Costs	p. 46
The Optimal Capital Structure and the M&M Hypothesis	p. 48
Empirical Factors Influencing Financial Structures	p. 49
Cost of Capital	p. 50
Real Options and the Investment Decision	p. 53
Abandonment Value	p. 54
Option to Delay a Project	p. 66
Implications of Viewing the Right to Delay a Project as an Option	p. 67
Chapter 5 An Introduction to Statistical Analysis and Simultaneous Equations	p. 69
The Linear Regression Model	p. 71
Multiple Regression	p. 79
Least Squares Estimates of the Regression Coefficients	p. 80
Multiple Coefficient of Determination	p. 81
Estimation of Simultaneous Equations Systems	p. 82
Estimation of Parameters in Multiple Equation (Regression) Models	p. 84
Two-Stage Least Squares (2SLS)	p. 86
Three-Stage Least Squares (3SLS)	p. 89
The Three-Stage Least Squares Estimator	p. 89
Chapter 6 Interdependencies among Corporate Financial Policies	p. 93
The Model	p. 94
The Data	p. 178
Estimated Simultaneous Equations Results	p. 178
Chapter 7 Comparing Census/National Science Foundation R&D Data with Compustat R&D Data	p. 181
Innovation, R&D, and Stockholder Wealth	p. 182
Financial Decision Estimation Results	p. 183
Comparison of R&D Expenditure Data	p. 186
Comparison of Regression Results	p. 188
Relation of Current Results to Prior Research	p. 193
Extensions of the Simultaneous Equations Approach	p. 195
Summary and Conclusions	p. 197
Suggestions for Future Research	p. 198
Chapter 8 The Use of Financial Information in the Risk and Return of Equity	p. 201
Introduction to Modern Portfolio Theory	p. 209
Determinants of Stock Selection Models	p. 212
Further Estimations of a Composite Equity Valuation Model	p. 213
Appendix 8.A Multifactor Risk Models	p. 218
BARRA Model Mathematics	p. 219
Risk Prediction with Multiple-Factor Models	p. 220
Appendix 8.B US-E3 Descriptor Definitions	p. 227
Volatility	p. 227
Momentum	p. 229
Size	p. 229
Size Nonlinearity	p. 229
Trading Activity	p. 229
Growth	p. 230
Earnings Yield	p. 232
Value	p. 232
Earnings Variability	p. 233
Leverage	p. 233
Currency Sensitivity	p. 234
Dividend Yield	p. 235
Non-Estimation Universe Indicator	p. 235
Chapter 9 The Optimization of Efficient Portfolios: How the R&D Quadratic Term Enhances Stockholder Wealth	p. 237
Efficient Portfolio Optimization Results	p. 238
Chapter 10 The (Not So Special) Case of Social Investing	p. 249
Stock Selection in Unscreened and Screened Universes	p. 253
Stock Selection and the Domini Social Index Securities	p. 258
Recent Socially Responsible Research	p. 258
Summary and Conclusions	p. 259
Chapter 11 R&D Management and Corporate Financial Policy: Conclusions	p. 261
Exercises	p. 263
Notes	p. 265
References	p. 271
About the CD-ROM	p. 281
Index	p. 283

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Table of Contents