R&D effects, risks and strategic decisions: evidence from listed firms in R&D-intensive countries
Abstract
Purpose
The purpose of this research is to look at the effects of research and development expenditures (R&D) on value and risks of publicly traded companies by studying returns on stock exchanges of R&D-intensive economies (Republic of Korea, Finland and Israel).
Design/methodology/approach
Empirical tests of multifactor asset pricing models were applied to demonstrate that R&D intensity could be considered as a pricing factor and affect investors’ risk premiums on those markets. To discover the reasons behind the asset pricing R&D anomaly, this study investigated the nature of R&D risk further by looking into the interactions of R&D and currency risks.
Findings
This study discovered that investors in stock markets of R&D-intensive countries should require a positive equity risk premium. However, the reduction of R&D intensity may increase firms’ risks and firms with higher R&D-intensity are less exposed to currency risks in R&D-intensive economies.
Originality/value
Many researchers have investigated the relationship between a firm’s R&D and stock returns. But nearly all of them focus on the US Stock Market and attempt to determine the reasons for R&D’s impact on firms’ risks and market value. Meanwhile, the role of R&D and related risks for investors could be even more prominent for stock markets in R&D-intensive countries. To bridge this gap, this research studied stock returns on exchanges of three developed countries where the ratio of gross domestic expenditure on R&D (GERD) to GDP is among the highest worldwide. In this study, the methodology of asset pricing empirical studies was adopted and it was further developed to analyze the causes of R&D risks. The new methodology was applied to discover relationship between R&D intensity and currency risk exposure. The interesting findings could be used for development of firms’ corporate strategies in those countries and for elaboration of policy decisions.
Keywords
Acknowledgements
Contributions to this publication were supported within the framework of the Basic Research Program at the National Research University Higher School of Economics (HSE) and was funded within the framework of a subsidy granted to the HSE by the Government of the Russian Federation for the implementation of the Global Competitiveness Program.
Citation
Dranev, Y., Levin, A. and Kuchin, I. (2017), "R&D effects, risks and strategic decisions: evidence from listed firms in R&D-intensive countries", Foresight, Vol. 19 No. 6, pp. 615-627. https://doi.org/10.1108/FS-07-2017-0033
Publisher
:Emerald Publishing Limited
Copyright © 2017, Emerald Publishing Limited