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Public R&D spending and cross-sectional stock returns

Sheng-Syan Chen, Yan-Shing Chen, Woan-lih Liang and Yanzhi Wang

Research Policy, 2020, vol. 49, issue 1

Abstract: Empirical findings on the economic benefits of public research and development (R&D) spending are mixed. We adopt an alternative approach by examining the effect of public R&D spending on stock returns. We find that firms located in states with a greater amount of public R&D spending earn higher abnormal stock returns. The effect persists after accounting for conventional pricing factors and state-level variables, and becomes stronger for firms with greater absorptive capabilities. The abnormal stock returns are not only related to the positive effects of public R&D on firm productivity and incoming spillovers, but are also related to the increased cash flow risk. Policymakers should consider both risk and return effects when making any changes in public R&D investment.

Keywords: Public R&D spending; Stock returns; R&D spillovers (search for similar items in EconPapers)
JEL-codes: G12 G14 O31 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.respol.2019.103887

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