When Profitability Speaks Loudest: How Institutional Quality Shapes Valuation in Global Semiconductor Firms

This study investigates how profitability, innovation investment, and capital structure interact with national institutional environments to shape firm valuation in the global semiconductor industry. Using panel data of 881 firm‐year observations from 57 multinational firms (2005–2023), we find that valuation effects depend on governance quality. Profitability (ROA) is rewarded only in strong rule‐of‐law environments; elsewhere, it has little or even negative impact on price‐to‐book ratios. R&D intensity is penalized in highly regulated environments, where export controls, compliance costs, and uneven intellectual property enforcement may delay commercialization and elevate perceived risk. Financial leverage is more positively valued in politically stable countries, indicating greater investor tolerance for debt under reduced macro‐political uncertainty. While focused on semiconductors, these findings extend to other capital‐intensive, innovation‐driven sectors. Aligning performance signals with institutional contexts can enhance investor confidence and improve valuation outcomes in global markets.