duqi, andi and mirti, riccardo and torluccio, giuseppe (2011): An analysis of the R&D effect on stock returns for European listed firms. Published in: European Journal of Financial Research , Vol. 1, No. 4 (2011): pp. 482-496.
Download (189kB) | Preview
Almost all studies on research and development (R&D) activity are based on US and British companies, and most of them show that this activity positively influences both stock returns and corporate value. This empirical study evaluates the effects of R&D on stock returns for a sample of listed companies from thirteen European countries: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Spain, Sweden and United Kingdom. We find that this effect is positive, and also significant, in predicting future returns.Other variables appear to be important too, such as book-to-market ratio and firm size. We also test a different set of hypotheses that aim to capture the many differences and peculiarities between these countries such as the development of the national equity and credit markets, the grade of disclosure for listed firms and the protection of minority shareholders. Generally, financial markets value R&D investment better in investorfriendly environments and those with a high level of legal protection.
|Item Type:||MPRA Paper|
|Original Title:||An analysis of the R&D effect on stock returns for European listed firms|
|Keywords:||European financial markets, market value, R&D, Stock returns, Valuation|
|Subjects:||G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets
C - Mathematical and Quantitative Methods > C2 - Single Equation Models; Single Variables > C23 - Models with Panel Data; Longitudinal Data; Spatial Time Series
O - Economic Development, Technological Change, and Growth > O3 - Technological Change; Research and Development; Intellectual Property Rights > O32 - Management of Technological Innovation and R&D
|Depositing User:||Andi Duqi|
|Date Deposited:||12. Jul 2012 09:53|
|Last Modified:||12. Feb 2013 03:56|
Al-Horani, A., Pope, P. F. and Stark, A. (2003), “Research and development activity and expected returns in the United Kingdom”, European Finance Review, Vol. 7, pp. 27-46.
 Bae, S.C. and Kim, D. (2003), “The effect of R&D investments on market value of firms: Evidence from the U.S., Germany and Japan”, Multinational Business Review, Vol. 11 No.3, pp. 51-75.
 Banz, R.W. (1981), “The relationship between return and market value of common stocks”, Journal of Financial Economics, Vol. 9, pp. 3-18.
 Black, A.J. and Fraser, P. (2000), “International comparisons on stock market short-termism: How different is the UK experience?”, Manchester School, Vol.68, pp. 38-50.
 Bond, S., Ann Elston, J., Mairesse, J. and Mulkay, B. (2003), “Financial factors and investment in Belgium, France, Germany, and the United Kingdom: A comparison using company panel data”, Review of Economics and Statistics, Vol. 85 No.1, pp. 153-165.
 Bublitz, B. and Ettredge, M. (1989), “The information in discretionary outlays – Advertising, Research and Development”, Accounting Review, Vol. 64 No.1, pp. 108-124.
 Chambers, D., Jennings, R. and Thompson R. B. II (2002), “Excess returns to R&D-intensive firms”, Review of Accounting Studies, Vol. 7 No. 2-3, pp. 133-159.
 Chan, L., Lakonishok, J. and Sougiannis, T. (2001), “The stock market valuation of research and development expenditures”, The Journal of Finance, Vol. 56 No. 6, pp. 2431-2457. An Analysis of the R&D Effect on StockReturns for European Listed Firms
 Daniel, K. and Titman, S. (2006), “Market reactions to tangible and intangible information”, Journal of Finance, Vol. 61 No.4, pp. 1605-1643.
 Duqi, A. and Torluccio, G. (2010), “R&D expenditures and Firm Valuation: Evidence from Europe”, working paper, Social Sciences Research Network Series.
 Duqi, A. and Torluccio, G. (2011), “Can R&D expenditures affect firm market value? An empirical analysis of a panel of European listed firms”, in Palgrave 2011 Series, Bank performance, risk and firm financing, forthcoming.
 Eberhart, A.C., Maxwell, W.F. and Siddique, A.R. (2004), “An examination of long-term abnormal stock returns and operating performance following R&D increases”, Journal of Finance, Vol. 59 No.2, pp. 623-650.
 Faccio, M. and Lang, L.H.P. (2002), “The ultimate ownership of Western European corporations”, Journal of Financial Economics, Vol. 65 No.3, pp. 365-395.
 Fama, E. and MacBeth, J. (1973), “Risk, return and equilibrium: Empirical tests”, Journal of Political Economy, Vol. 81, pp. 607-636.
 Fama, E. and French, K. (1992), “The cross section of expected returns”, Journal of Finance, Vol. 46, pp. 427-465.
 Franks, J. and Mayer, C. (1990), “Capital markets and corporate control: a study of Germany, France and the UK”, Economic Policy, Vol. 10, pp. 189-232.
 Griliches, Z. and Mairesse, J. (1981), “Productivity and R&D at the firm level”, working paper, National Bureau of Economic Research, No .826.
 Griliches, Z. (1981), “Market value, R&D, and patents”, Economics Letters, Vol. 7 No. 2, pp. 183-187.
 Hall, B.H. (1990), “The manufacturing sector master file: 1959-1987”, working paper, National Bureau of Economic Research, No. 3366.
 Hall, B.H. (1993b), “The stock market’s valuation of R&D investment during the 1980’s”, American Economic Review, Vol. 83 No. 2, pp. 259-264.
 Hall, B.H. (1999), “Innovation and market value”, working paper, National Bureau of Economic Research, No. 6984.
 Hall, B.H. and Oriani, R. (2006), “Does the market value R&D investment by European firms? Evidence from a panel of manufacturing firms in France, Germany, and Italy”, International Journal of Industrial Organization, Vol. 24, pp. 971-993.
 Hughes, J. P. (2008), “R&D and dividend payments as determinants of corporate value in the UK”, International Journal of Managerial Finance, Vol. 4 No.1, pp. 76-91.
 La Porta, R., Lopez-de-Silanes, F., Shleifer, A. and Vishny, R. (1998), “Law and finance”, Journal of Political Economy, Vol. 106 No. 6, pp. 1113-1155.
 La Porta, R., Lopez-de-Silanes, F., Shleifer, A. and Vishny, R. (2002), “Investor Protection and Corporate Valuation”, Journal of Finance, Vol. 57 No. 3, pp. 1147-1170.
 La Porta, R., Lopez-de-Silanes, F. and Shleifer, A. (2006), “What works in securities laws?” Journal of Finance, Vol. 61 No. 1, pp. 1-32.
 Lev, B. and Sougiannis, T, (1996), “The capitalization, amortization, and value relevance of R&D”, Journal of Accounting and Economics, Vol. 21, pp. 107-138.
 Lev, B. and Sougiannis, T, (1999), “Penetrating the book-to-market black box: the R&D effect”, Journal of Business Finance & Accounting, Vol. 26 No.3/4, pp. 419-449.
 Megna, P. and Klock, M. (1993), “The Impact of Intangible Capital on Tobin's q in the Semiconductor Industry”, American Economic Review, Vol. 83 No. 2, pp. 265-269.
 Mulkay B., Hall, B.H. and Mairesse, J. (2000), “Firm level investment and R&D in France and the United States: A comparison”, working paper, National Bureau of Economic Research, No. 8038.
 Pagano, M., Panetta, F. and Zingales, F. (1998), “Why do companies go public? An empirical analysis”, Journal of Finance, Vol. 53, pp. 27–64. 496 Andi Duqi, Riccardo Mirti and Giuseppe Torluccio
 Penman, S.H. and Zhang X-J. (2002), “Accounting conservatism, the quality of earnings and stock returns”, Accounting Review, Vol. 6, pp. 237-264.
 Pindado, J., de Queiroz, V. and de la Torre, C. (2010), “How do firm characteristics influence the relationship between R&D and firm value?”, Financial Management, Vol. 39 No.2, pp. 757-782.
 Sougiannis, T. (1994), “The accounting based valuation of corporate R&D”, Accounting Review, Vol. 69 No. 1, pp. 44-68.
 Toivanen, O., Stoneman, P. and Bosworth D. (2002), “Innovation and the market value of UK firms, 1989-1995”, Oxford Bulletin of Economics and Statistics, Vol.64 No.1, pp. 39-61.
 Tylecote, A. and Ramirez, P. (2006), “Corporate governance and innovation; The UK compared with the US and ‘insider’ economies”, Research Policy, Vol. 35, pp. 160-180.
 Zu, M. and Zhang, Chu. (2004), “The explanatory power of R&D for the cross section of stock returns: Japan 1985-2000”, Pacific-Basin Finance Journal, Vol. 12, pp. 245-269.