Corporate R&D and Stock Returns: International Evidence

89 Pages Posted: 12 Nov 2020

See all articles by Kewei Hou

Kewei Hou

Ohio State University (OSU) - Department of Finance

Po-Hsuan Hsu

National Tsing Hua University - Department of Quantitative Finance

Shiheng Wang

Hong Kong University of Science & Technology (HKUST)

Akiko Watanabe

University of Alberta - School of Business; University of Alberta - Department of Finance and Statistical Analysis

Yan Xu

HKU, Faculty of Business and Economics

Date Written: September 23, 2020

Abstract

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

Hou, Kewei and Hsu, Po-Hsuan and Wang, Shiheng and Watanabe, Akiko and Xu, Yan, Corporate R&D and Stock Returns: International Evidence (September 23, 2020). Available at SSRN: https://ssrn.com/abstract=3697760 or http://dx.doi.org/10.2139/ssrn.3697760

Kewei Hou

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States
614-292-0552 (Phone)
614-292-2418 (Fax)

Po-Hsuan Hsu (Contact Author)

National Tsing Hua University - Department of Quantitative Finance ( email )

101, Section 2, Kuang-Fu Road
Hsinchu, Taiwan 300
China

Shiheng Wang

Hong Kong University of Science & Technology (HKUST) ( email )

Clear Water Bay
Kowloon, 999999
Hong Kong
(852) 2358 7570 (Phone)
(852) 2358 1693 (Fax)

Akiko Watanabe

University of Alberta - School of Business ( email )

3-30A Business Building
University of Alberta
Edmonton, Alberta T6G 2R6
Canada
780-492-0385 (Phone)
780-492-3325 (Fax)

HOME PAGE: http://www.bus.ualberta.ca/awatanabe

University of Alberta - Department of Finance and Statistical Analysis ( email )

2-32C Business Building
Edmonton, Alberta T6G 2R6
Canada

HOME PAGE: http://www.bus.ualberta.ca/awatanabe

Yan Xu

HKU, Faculty of Business and Economics ( email )

Pok Fu Lam Road
Hong Kong
Hong Kong

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