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Corporate R&D and Stock Returns: International Evidence

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  • Hou, Kewei
  • Hsu, Po-Hsuan
  • Wang, Shiheng
  • Watanabe, Akiko
  • Xu, Yan

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 returns is more likely attributable to risk premium than to mispricing.

Suggested Citation

  • Hou, Kewei & Hsu, Po-Hsuan & Wang, Shiheng & Watanabe, Akiko & Xu, Yan, 2022. "Corporate R&D and Stock Returns: International Evidence," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 57(4), pages 1377-1408, June.
    • Handle: RePEc:cup:jfinqa:v:57:y:2022:i:4:p:1377-1408_5
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