Application of vertical disintegration theory in R&D effect on firm value in semiconductor industry

This paper focuses on the Taiwan integrated circuit (IC) industry because the global market shares of Taiwan IC manufacturing industries are ranked number one. The purposes of study are to compare the differences in the effect of innovation activities on the market value among the IC design, manufacturing, packaging and testing industries and to evaluate whether the tax shields can increase firm value. The results statistically indicate that R&D significantly enhance market values in IC design firms, while does not in IC manufacturing firms, indicating IC firm´s R&D has a significant impact on the market value in IC design firms. In addition, this investigation concludes that the coefficient of tax shield is insignificant. Finally, the coefficient of book value (equity) in the regression equation is larger than one. The results are consistent with the conservatism principle in the accounting field. Furthermore, we find that the marginal impact of R&D on market values in IC design industries is larger than those in IC manufacturing industries. Under the vertical disintegration structure of Taiwan IC industry, each step of IC manufacturing, packaging and testing stages is fixed with standardized machinery and equipments, so these IC manufacturing stages do not rely on R&D as much as IC design stage does.