Corporate R&D and Stock Returns: International Evidence
Journal of Financial and Quantitative Analysis (JFQA), Forthcoming
89 Pages Posted: 12 Nov 2020 Last revised: 26 Oct 2021
Date Written: September 23, 2020
Firms with higher R&D intensity subsequently experience higher stock returns in international stock markets, highlighting the role of intangible investments in international asset pricing. The R&D effect is stronger in countries where growth option risk is more likely priced, but is unrelated to country characteristics representing market sentiments and limits-of-arbitrage. Moreover, we find that R&D intensity is associated with higher future operating performance, return volatility, and default likelihood. Our evidence suggests that the cross-sectional relation between R&D intensity and stock return is more likely attributable to risk premium than to mispricing.
Keywords: R&D; Cross-section of stock returns; Innovation
JEL Classification: G12, G15, O32
Suggested Citation: Suggested Citation