R&D innovation and the value of cash in the biotech industry

This study investigates how the market pricing of an additional dollar of cash held by biotech firms is conditional upon the industry's typical performance, R&D innovation. Under the proposed R&D innovation regime, I find i) an additional dollar of cash is priced higher if held by a firm with higher R&D innovation: ii) the role of R&D innovation is asymmetric depending on whether R&D activities move the drug discovery and development forward or backward; and iii) R&D innovation also differentiates the association between investment opportunities and value of cash observed by prior studies. (C) 2008 Elsevier Inc. All rights reserved.