R&D, Knowledge Spillovers and Stock Volatility

18 Pages Posted: 8 May 2006

See all articles by Michael K. Fung

Michael K. Fung

Hong Kong Polytechnic University - School of Accounting & Finance


Firms improve their know-how not only by innovations (producing new knowledge), but also by knowledge spillovers (learning from others). The objective of this study is to test for two major hypotheses developed from a theoretical model explaining the relationship between R&D, knowledge spillovers and stock volatility. Analytically, the model suggests that asymmetric information caused by R&D activities with uncertain future output increases stock volatility, even though dividends and consumptions remain unchanged. However, interfirm knowledge spillovers have a negative impact on stock volatility by reducing the degree of asymmetric information. Both hypotheses are supported by empirical evidence from this study.

Suggested Citation

Fung, Michael K., R&D, Knowledge Spillovers and Stock Volatility. Accounting and Finance, Vol. 46, No. 1, pp. 107-124, March 2006, Available at SSRN: https://ssrn.com/abstract=889788 or http://dx.doi.org/10.1111/j.1467-629X.2006.00166.x

Michael K. Fung (Contact Author)

Hong Kong Polytechnic University - School of Accounting & Finance ( email )

Hung Hom, Kowloon
Hong Kong

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