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

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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.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 40012.

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Date of creation: 2011
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Publication status: Published in European Journal of Financial Research 4.1(2011): pp. 482-496
Handle: RePEc:pra:mprapa:40012

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Related research

Keywords: European financial markets; market value; R&D; Stock returns; Valuation;

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  1. Rafael La Porta & Florencio Lopez-deSilanes & Andrei Shleifer & Robert W. Vishny, 1999. "Investor Protection and Corporate Valuation," NBER Working Papers 7403, National Bureau of Economic Research, Inc.
  2. Black, Angela J & Fraser, Patricia, 2000. "International Comparisons on Stock Market Short-Termism: How Different Is the UK Experience?," Manchester School, University of Manchester, vol. 68(0), pages 38-50, Supplemen.
  3. Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer, . "What Works in Securities Laws?," Working Paper 19491, Harvard University OpenScholar.
  4. Stephen Bond & Julie Ann Elston & Jacques Mairesse & Beno�t Mulkay, 2003. "Financial Factors and Investment in Belgium, France, Germany, and the United Kingdom: A Comparison Using Company Panel Data," The Review of Economics and Statistics, MIT Press, vol. 85(1), pages 153-165, February.
  5. Kent Daniel & Sheridan Titman, 2003. "Market Reactions to Tangible and Intangible Information," NBER Working Papers 9743, National Bureau of Economic Research, Inc.
  6. Lev, Baruch & Sougiannis, Theodore, 1996. "The capitalization, amortization, and value-relevance of R&D," Journal of Accounting and Economics, Elsevier, vol. 21(1), pages 107-138, February.
  7. Fama, Eugene F & MacBeth, James D, 1973. "Risk, Return, and Equilibrium: Empirical Tests," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 607-36, May-June.
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