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R&D investment and systematic risk

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  • Yew Kee Ho
  • Zhenyu Xu
  • Chee Meng Yap

Abstract

The present study investigates the relationship between a firm's R&D intensity and the risk of its common stock, by analysing a sample of firms which are more profitable, larger in market capitalization and more R&D intensive than the universe of US‐listed firms. The results from the portfolio analysis, Monte Carlos simulations and correlation analysis of our sample show that: (i) R&D intensity is positively related to systematic risk in the stock market; (ii) the greater systematic risk is largely attributable to the greater intrinsic business risk and the greater operating risk of R&D‐intensive firms; (iii) R&D‐intensive firms carry marginally less financial leverage but they do not differ from other firms in terms of operating leverage; and (iv) our results are particularly strong in the manufacturing sector. For the non‐manufacturing sector, the results are not robust for different study periods.

Suggested Citation

  • Yew Kee Ho & Zhenyu Xu & Chee Meng Yap, 2004. "R&D investment and systematic risk," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 44(3), pages 393-418, November.
    • Handle: RePEc:bla:acctfi:v:44:y:2004:i:3:p:393-418
    DOI: 10.1111/j.1467-629x.2004.00116.x
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