Strategic growth option, uncertainty, and R&D investment

Lai Van Vo and Huong Thi Thu Le

International Review of Financial Analysis, 2017, vol. 51, issue C, 16-24

Abstract: This paper investigates the effect of uncertainty on R&D investment. We find that firms invest more in R&D when they face higher uncertainty, as measured by idiosyncratic return volatility. We further show that the effect is more pronounced for firms in more competitive industries as well as for firms whose products have less market power. Overall, our findings support the theory of strategic growth option in which firms under competition follow preemptive strategy when they face high uncertainty.

Keywords: Growth option; Idiosyncratic volatility; R&D investment; Uncertainty (search for similar items in EconPapers)
JEL-codes: G31 G32 O32 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (28)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:51:y:2017:i:c:p:16-24

DOI: 10.1016/j.irfa.2017.03.002

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