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Encyclopedia of Finance pp 851–869Cite as

Nonlinear Models in Corporate Finance Research: Review, Critique, and Extensions

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Abstract

Since the work of Morck et al. (Journal of Financial Economics 20: 293–315, 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.

This article is an updated version of the article entitled “Nonlinear Models in Corporate Finance Research: Review, Critique, and Extensions” published in the Review of Quantitative Finance and Accounting (Sheng-Syan Chen, Kim Wai Ho, Cheng-few Lee, and Keshab Shrestha, Vol. 22, 2004, pp. 141–169). We would like to thank the editor of the Review of Quantitative Finance and Accounting, Professor Cheng-few Lee, and Kluwer Academic Publishers for permission to reprint the paper.

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Acknowledgments

The authors wish to thank James Booth and seminar participants at the 2001 FMA Annual Meeting, the Seventh Conference on Pacific Basin Finance, Economics and Accounting, and Annual Research Conference in Finance and Financial Market in the twenty-first Century for helpful comments. Wei-Ying Nie provided capable research assistance. Any errors are the authors’.

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Authors and Affiliations

  1. Department of Finance, College of Management, National Taiwan University, No. 85, Sec. 4, Roosevelt Road, Taipei, Taiwan, Republic of China

    Sheng-Syan Chen

  2. Division of Banking and Finance, Nanyang Business School, Nanyang Technological University, Nanyang Avenue, Singapore, 639798, Singapore

    Kim Wai Ho

  3. Department of Finance, National Central University, Taipei, Taiwan, Republic of China

    Cheng-Few Lee

  4. Rutgers Business School, Rutgers University, New Brunswick, USA

    Cheng-Few Lee

  5. Risk Management Institute, National University of Singapore, 21 Heng Mui Keng Terrace, I3 Building, Singapore, 119613, Singapore

    Keshab Shrestha

Authors
  1. Sheng-Syan Chen
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  2. Kim Wai Ho
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  3. Cheng-Few Lee
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  4. Keshab Shrestha
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Correspondence to Sheng-Syan Chen .

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Editors and Affiliations

  1. Dept. Finance, Rutgers University, Rockafeller Road 94, New Brunswick, 08854-8054, New Jersey, USA

    Cheng-Few Lee

  2. College of Business, San Francisco State University, Holloway Ave. 1600, San Fransisco, 94132, California, USA

    Alice C. Lee

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Chen, SS., Ho, K.W., Lee, CF., Shrestha, K. (2013). Nonlinear Models in Corporate Finance Research: Review, Critique, and Extensions. In: Lee, CF., Lee, A. (eds) Encyclopedia of Finance. Springer, Boston, MA. https://doi.org/10.1007/978-1-4614-5360-4_73

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  • DOI: https://doi.org/10.1007/978-1-4614-5360-4_73

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