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

Author

Listed:
  • 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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    File URL: https://mpra.ub.uni-muenchen.de/40012/1/MPRA_paper_40012.pdf
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    References listed on IDEAS

    as
    1. Rafael Porta & Florencio Lopez-De-Silanes & Andrei Shleifer, 2006. "What Works in Securities Laws?," Journal of Finance, American Finance Association, vol. 61(1), pages 1-32, February.
    2. A. Al-Horani & P. F. Pope & A. W. Stark, 2003. "Research and Development Activity and Expected Returns in the United Kingdom," Review of Finance, European Finance Association, vol. 7(1), pages 27-46.
    3. repec:hrv:faseco:30747191 is not listed on IDEAS
    4. Stephen Bond & Julie Ann Elston & Jacques Mairesse & BenoƮt 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. 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.
    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 607-636, May-June.
    8. Rafael La porta & Florencio Lopez-De-Silanes & Andrei Shleifer & Robert Vishny, 2002. "Investor Protection and Corporate Valuation," Journal of Finance, American Finance Association, vol. 57(3), pages 1147-1170, June.
    9. Kent Daniel & Sheridan Titman, 2006. "Market Reactions to Tangible and Intangible Information," Journal of Finance, American Finance Association, vol. 61(4), pages 1605-1643, August.
    10. Bronwyn H. HALL & Raffaele ORIANI, 2004. "Does the Market Value R&D Investment by European Firms? Evidence from a Panel of Manufacturing Firms in France," Economics Working Papers ECO2004/13, European University Institute.
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    Cited by:

    1. 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.

    More about this item

    Keywords

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

    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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