Nonlinear models in corporate finance research: review, critique, and extensions

Sheng Syan Chen, Kim Wai Ho, Cheng Few Lee, Keshab Shrestha

Research output: Contribution to journalReview ArticleResearchpeer-review

15 Citations (Scopus)


Since the work of Morck, Shleifer and Vishny (1988), nonlinear model specification has gained more attention in corporate finance research. In this paper, we provide a detailed review of the previous studies that have examined nonlinear relations in corporate finance. We review the theory and evidence in these studies and discuss the advantages and disadvantages of the various methodologies used to detect nonlinearity. We also suggest two possible methodological extensions, which we apply in the empirical analysis of R&D investment and firm value.

Original languageEnglish
Pages (from-to)141-169
Number of pages29
JournalReview of Quantitative Finance and Accounting
Issue number2
Publication statusPublished - Mar 2004
Externally publishedYes


  • Nonlinear models
  • Nonlinearity with interaction effect
  • Residual analysis

Cite this