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.
|Number of pages||29|
|Journal||Review of Quantitative Finance and Accounting|
|Publication status||Published - Mar 2004|
- Nonlinear models
- Nonlinearity with interaction effect
- Residual analysis