Vol. 10 6, 2020 p 620-635


Article name, authors, abstract and keyword


R&D economic efficiency valuation methods and specifics of their application

Pavel Y. Serikov a, Konstantin A. Sivolotsky a, ndrey . Balakirev a

a Transneft, 4, bldg 2 Presnenskaya Embankment, Moscow, 123112, Russian Federation

DOI: 10.28999/2541-9595-2020-10-6-620-635

Abstract: Valuation of research and development projects (R&D) is crucial for technological development, financial and operational performance improvement of companies. However, R&D valuation methods are not fully and in detail disclosed in publications, a single concept for assessing the effectiveness of R&D has not yet been developed. The cause of this scientific and practical problem is that scientific developments are carried out in conditions of increased risk and uncertainty, often aimed at solving strategic, long-term tasks, which does not allow at the initial stage to reliably evaluate their final effect of innovations. The object of research in the article are methods for assessing the economic efficiency of R&D. The aim of the article is to formulate an approach to R&D valuation method selection based on applicability criteria developed by the authors. In the course of the study, a review of existing methods for assessing effectiveness was conducted, their advantages and disadvantages were identified, and the feasibility of using a specific assessment method based on the specifics of scientific development was analyzed. There were considered R&D economic efficiency valuation models (discounted cash flows, Monte-Carlo simulations, real option valuation, decision tree analysis, relief from royalty method) as well as methods for determining discount rates used in these methods. When applying various valuation methods, the discount rate may vary due to differences in risk accounting approaches. There were also considered examples of alternative methods for R&D efficiency valuation such as grading system and integral efficiency index. The theoretical result is a review of R&D valuation methods and generalization of the information. The practical result of the work is the description of approach for selection of optimal R&D economic efficiency valuation method and possible implementation of the described approach in practice.

Keywords: R&D, research work, development work, technological work, economic efficiency, economic effect, valuation methods, oil pipeline transportation.

For citation:
Serikov P. Y., Sivolotsky K. A., Balakirev . . R&D economic efficiency valuation methods and specifics of their application. Nauka i tehnologii truboprovodnogo transporta nefti i nefteproduktovScience & Technologies: Oil and Oil Products Pipeline Transportation. 2020;10(6):620635.

[1] Ewens M., Peters R. H., Wang S. Acquisition prices and the measurement of intangible capital. 2019. 70 p.
[2] Ross A. Taxation and pricing of intangibles. 2019. 86 p.
[3] Carlsson C., Fuller R., Majlender P. A fuzzy real options model for R&D project evaluation. 10 p.
[4] Iazzolino G., Migliano G., Guarnaccia N. The QuIC: quantitative intellectual capital-based methodology for firm valuation. 2019. 13 p.
[5] Celiktas M. Real options in defense R&D: a decision tree analysis approach for options to defer, abandon, and expand. 2016. P. 53.
[6] Jinfa L., Biting L. Evaluation method of R&D investment value of intelligent manufacturing enterprise based on growth option. 2016. 7 p.
[7] Boer F. P. Risk-adjusted valuation of R&D projects. 2003. 21 p.
[8] Kang M., Kim S., Cho M.-K. The Effect of R&D and the control-ownership wedge on firm value: evidence from Korean Chaebol firms. 2019. 20 p.
[9] Ivanova N., Savchenko N. How to evaluate R&D efficiency. Economics and life. 2019. No. 8. (In Russ.)
[10] Revel-Muroz P. ., Soschenko . ., Chernikin V. ., Mitkin N. V. Innovations and R&D: planning and efficiency. Oil Pipeline Transportation. 2016(6):1619. (In Russ.)
[11] Sivolotsky K. A., Zaitsev S. F. Principal methods to evaluate economic efficiency of investment projects. Nauka i tehnologii truboprovodnogo transporta nefti i nefteproduktovScience & Technologies: Oil and Oil Products Pipeline Transportation. 2013(3):4045. (In Russ.)
[12] Brealey R., Myers S. Principles of corporate finance. Moscow: Olymp-Business Publ.; 2009. 456 p. (In Russ.)
[13] Valuation methods [accessed 2019 July 02]. www.venturevaluation.com.
[14] Cox J. C., Ross S. A. The valuation of options for alternative stochastic processes. 1976. 22 p.
[15] Vasilevskiy A., Gavrish Y., Karachun I. Market options fair value stochastic valuation methods: BSM & CRR [accessed 2019 July 02]. https://elib.bsu.by/bitstream/123456789/18395/1/vas_gav.pdf. (In Russ.)
[16] Kozyrev A. N. Evaluation of intellectual property. Moscow: Ekspertnoye Byuro-M; 1997. 280 p. (In Russ.)
[17] Razgaitis R. Valuation and dealmaking of technology-based intellectual property: principles, methods, and tools. Hoboken, New Jersey: John Wiley & Songs, Inc.; 2009.
[18] Smith G. V., Parr R. L. Valuation of intellectual property and intangible assets. N. Y.: John Wiley & Sons, Inc.; 2000.
[19] Parr R. L., Smith G. V. Intellectual property: valuation, exploitation and infringement damages. Cumulative Supplement. Hoboken, New Jersey: John Wiley & Sons, Inc.; 2009.
[20] Ruhnka J. C., Young J. E. Some hypotheses about risk in venture capital investing. Journal of Business Venturing. 1991(6):126.
[21] Wetzel W. Informal risk capital in New England / In Karl H. Vesper (Ed.). Frontiers of Entrepreneurship Research. Wellesley, MA: Babson College; 1981. P. 217245.
[22] Plummer J. L. QED Report on venture capital financial analysis. Palo Alto, CA: QED Research Inc.; 1987.
[23] Scherlis D. R., Sahlman W. A. A method for valuing high-risk, long term investments: the venture capital method. Boston: HBS Publishing; 1987.
[24] Sharpe W. F., Alexander G. J., Bailey J. V. Investments. Moscow: Infra- Publ.; 2009. 698 p. (In Russ.)
[25] Fama E. F., French K. R. Multifactor explanations of asset pricing anomalies. Journal of Finance. 1996;51(1):5584.
[26] Carhart M. M. On persistence in mutual fund performance. Journal of Finance. 1997;52(1):5782.
[27] Gordon M. J., Shapiro E. Capital equipment analysis: the required rate of profit. Management Science. 1956;3(1):102110.
[28] Serikov P. Y., Sivolotsky K. A., Mestnikov A. A. Discount rate calculation for investment projects economic efficiency valuation. Nauka i tehnologii truboprovodnogo transporta nefti i nefteproduktovScience & Technologies: Oil and Oil Products Pipeline Transportation. 2018;8(2):206217. (In Russ.)
[29] Damodaran . Betas by Sector, as of January 2015 [accessed 2019 July 02]. http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/Betas.html.