Corporate investment and growth opportunities: The role of R&D-capital complementarity

Anthony Sanford and Mu-Jeung Yang

Journal of Corporate Finance, 2022, vol. 72, issue C

Abstract: How does the interaction of uncertainty and R&D impact corporate investment? We provide evidence that R&D significantly increases corporate investment responsiveness to PVGO news and uncertainty shocks. These results are consistent with predictions from the R&D-based real options model of corporate investment. To establish credible causal results we combine new measures of systematic and firm-specific PVGO shocks, for which we utilize stock price and option data, with exogenous measures of R&D capital stocks derived from panel variation in state R&D tax credits. We also rule out a number of potentially competing explanations for our results, including firm-level differences in lumpiness of investments, financial frictions, lifecycle growth opportunities or moral hazard-implied asset substitution or risk shifting.

Keywords: Corporate investment; PVGO; R&d; Option exercise (search for similar items in EconPapers)
JEL-codes: D25 G30 G31 O32 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:72:y:2022:i:c:s0929119921002522

DOI: 10.1016/j.jcorpfin.2021.102130

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