An analysis of the R&D effect on stock returns for European listed firms

Andi Duqi, Riccardo Mirti and Giuseppe Torluccio

MPRA Paper from University Library of Munich, Germany

Abstract: Almost all studies on research and development (R&D) activity are based on US and British companies, and most of them show that this activity positively influences both stock returns and corporate value. This empirical study evaluates the effects of R&D on stock returns for a sample of listed companies from thirteen European countries: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Spain, Sweden and United Kingdom. We find that this effect is positive, and also significant, in predicting future returns.Other variables appear to be important too, such as book-to-market ratio and firm size. We also test a different set of hypotheses that aim to capture the many differences and peculiarities between these countries such as the development of the national equity and credit markets, the grade of disclosure for listed firms and the protection of minority shareholders. Generally, financial markets value R&D investment better in investorfriendly environments and those with a high level of legal protection.

Keywords: European financial markets; market value; R&D; Stock returns; Valuation (search for similar items in EconPapers)
JEL-codes: C23 G15 O32 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (5)

Published in European Journal of Financial Research 4.1(2011): pp. 482-496

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:40012

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