Does R&D expenditure volatility affect stock return?

Erwei Xiang, Dominic Gasbarro, Grant Cullen and Wenjuan Ruan

Journal of Contemporary Accounting and Economics, 2020, vol. 16, issue 3

Abstract: The relation between the volatility of R&D expenditure and stock return may be influenced by disruptive adjustment costs, emerge from earnings management, or reflect the actions of managers attempting to control the overinvestment of technocrats. Using 5,178 publicly listed US firms from 1980 to 2018, we find a negative relation between R&D volatility and return, which is moderated by firm size. We conclude that investors react negatively to the disruptive effect of changes to R&D expenditure, except for small firms. In small firms, the benefit of the governance mechanism of varying R&D expenditure to control overinvestment outweighs the cost of disruption.

Keywords: R&D expenditure volatility; Stock return; Earnings management; Adjustment costs; Overinvestment-control (search for similar items in EconPapers)
JEL-codes: G32 G34 M41 O32 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jocaae:v:16:y:2020:i:3:s1815566920300254

DOI: 10.1016/j.jcae.2020.100211

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