R&D and Performance Persistence: Evidence from the United Kingdom

Posted: 26 May 2006 Last revised: 7 Sep 2008

See all articles by Seraina C. Anagnostopoulou

Seraina C. Anagnostopoulou

University of Piraeus, Department of Banking and Financial Management

Mario Levis

City University London - Cass Business School

Date Written: September 1, 2008

Abstract

There is compelling evidence from both the United States and United Kingdom suggesting that R&D investment is positively related to operating and/or market performance. This study extends prior research on R&D and valuation by further examining the sustainability or persistence of operating growth and market performance as a result of R&D investments.

We use a large dataset of U.K. companies during the period 1990-2003 and our findings confirm the relation between R&D intensity and consistent growth in Sales and Gross Income, but only in the cases when a firm needs to engage in R&D activity because of the industry in which it operates.Moreover, our evidence indicates not only a positive relation between R&D intensity and subsequent risk-adjusted excess returns among firms that engage in R&D as testified by prior literature, but we also show that R&D intensity improves persistence in excess stock returns: the highest R&D-intensity firms are found to earn higher risk-adjusted excess returns more consistently than the sample median return, compared to lower R&D-intensity firms, as well as firms with no R&D. We interpret this finding as consistent with at least some form of market mispricing.

Keywords: R&D, Research and Development, Research, Development, Persistence, Intangibles

JEL Classification: G14, M41

Suggested Citation

Anagnostopoulou, Seraina C. and Levis, Mario, R&D and Performance Persistence: Evidence from the United Kingdom (September 1, 2008). International Journal of Accounting, Vol. 43, No. 3, 2008. Available at SSRN: https://ssrn.com/abstract=904560

Seraina C. Anagnostopoulou (Contact Author)

University of Piraeus, Department of Banking and Financial Management ( email )

80 Karaoli & Dimitriou Str.
Piraeus, 18534
Greece

Mario Levis

City University London - Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
4420 70408635 (Phone)

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