Research and Development and Firm Risk

34 Pages Posted: 6 Nov 2013

See all articles by Matthijs Suurmeijer

Matthijs Suurmeijer

University of Groningen - Faculty of Economics and Business

Peter P.M. Smid

University of Groningen - Faculty of Economics and Business

J. Henk von Eije

University of Groningen - Faculty of Economics and Business

Multiple version iconThere are 2 versions of this paper

Date Written: November 5, 2013

Abstract

Spending on R&D has grown faster than other investments. This may result in higher return and higher risk. We focus on the latter and examine how research and development (R&D) affects the risks of US firms. We analyze the impact on the firm’s beta, its systematic and idiosyncratic risk, and the combination of the latter two (total risk). Because investors prefer upside to downside risk, we also analyze whether downside risk is influenced by R&D. Panel and quantile regressions show that the impact is positive and highly significant for beta, systematic risk and total risk. These effects are, moreover, stronger at higher relative levels of R&D spending. Unfortunately for investors, downside risk is also increasing with relative R&D spending.

Keywords: R&D, beta, systematic risk, idiosyncratic risk, downside risk

JEL Classification: G12, G14, G32

Suggested Citation

Suurmeijer, Matthijs and Smid, Peter P.M. and von Eije, J. Henk, Research and Development and Firm Risk (November 5, 2013). Available at SSRN: https://ssrn.com/abstract=2350270 or http://dx.doi.org/10.2139/ssrn.2350270

Matthijs Suurmeijer

University of Groningen - Faculty of Economics and Business ( email )

Postbus 72
9700 AB Groningen
Netherlands

Peter P.M. Smid

University of Groningen - Faculty of Economics and Business ( email )

Postbus 72
9700 AB Groningen
Netherlands

J. Henk Von Eije (Contact Author)

University of Groningen - Faculty of Economics and Business ( email )

Postbus 72
9700 AB Groningen
Netherlands

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