An analysis of the R&D effect on stock returns for European listed firms

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.

Abstract

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
• Language: English
• 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 - Panel Data Models ; Spatio-temporal Models; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O32 - Management of Technological Innovation and R&D

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