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

Author

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  • duqi, andi
  • mirti, riccardo
  • torluccio, giuseppe

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.

Suggested Citation

  • duqi, andi & mirti, riccardo & torluccio, giuseppe, 2011. "An analysis of the R&D effect on stock returns for European listed firms," MPRA Paper 40012, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:40012
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    References listed on IDEAS

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    Cited by:

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    2. Dejan Ravšelj & Aleksander Aristovnik, 2020. "The Impact of R&D Expenditures on Corporate Performance: Evidence from Slovenian and World R&D Companies," Sustainability, MDPI, vol. 12(5), pages 1-20, March.
    3. Roland Standert, 2020. "R&D Spending and Stock Returns: Evidence from Germany," Journal of Accounting, Business and Finance Research, Scientific Publishing Institute, vol. 10(2), pages 68-75.
    4. Marina A. Zavertiaeva, 2015. "Portfolio Forming Decisions: The Role of Intangibles," HSE Working papers WP BRP 44/FE/2015, National Research University Higher School of Economics.
    5. Katerina Lyroudi & Thomas Chatzigagios, 2021. "Does Innovation Lead to Growth? An SDG for Companies in the Black Sea Markets Before and After COVID-19," South-Eastern Europe Journal of Economics, Association of Economic Universities of South and Eastern Europe and the Black Sea Region, vol. 19(2), pages 151-179.

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    More about this item

    Keywords

    European financial markets; market value; R&D; Stock returns; Valuation;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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