R&D, knowledge spillovers and stock volatility

Michael K. Fung

Accounting and Finance, 2006, vol. 46, issue 1, pages 107-124

Abstract: Firms improve their know-how not only by innovations (producing new knowledge), but also by knowledge spillovers (learning from others). The objective of this study is to test for two major hypotheses developed from a theoretical model explaining the relationship between R&D, knowledge spillovers and stock volatility. Analytically, the model suggests that asymmetric information caused by R&D activities with uncertain future output increases stock volatility, even though dividends and consumptions remain unchanged. However, interfirm knowledge spillovers have a negative impact on stock volatility by reducing the degree of asymmetric information. Both hypotheses are supported by empirical evidence from this study. Copyright The Author
Journal compilation (c) 2006 AFAANZ.

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