How Risky Is R and D? A Financial Approach

Gerard J Wedig

The Review of Economics and Statistics, 1990, vol. 72, issue 2, 296-303

Abstract: In order to understand the relationship between market structure and the risk of innovation, this paper proposes a synthesis between the capital asset pricing model and simple models of industrial organization. The theoretical section of the paper discusses the real determinants of R&D riskiness, finding that several unique features of R&D assets may influence their systematic risk, including their strategic nature and random arrival as well as the firm's industry context. The empirical results suggest that there is a considerable systematic risk premium associated with R&D that can be partially offset by firm size and market concentration. Copyright 1990 by MIT Press.

Date: 1990
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