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Public R&D spending and cross-sectional stock returns

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

Suggested Citation

  • Chen, Sheng-Syan & Chen, Yan-Shing & Liang, Woan-lih & Wang, Yanzhi, 2020. "Public R&D spending and cross-sectional stock returns," Research Policy, Elsevier, vol. 49(1).
    • Handle: RePEc:eee:respol:v:49:y:2020:i:1:s0048733319302057
    DOI: 10.1016/j.respol.2019.103887
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    More about this item

    Keywords

    Public R&D spending; Stock returns; R&D spillovers;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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