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R&D investment and systematic risk

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The present study investigates the relationship between a firm's R&D intensity and the risk of its common stock, by analysing a sample of firms which are more profitable, larger in market capitalization and more R&D intensive than the universe of US-listed firms. The results from the portfolio analysis, Monte Carlos simulations and correlation analysis of our sample show that: (i) R&D intensity is positively related to systematic risk in the stock market; (ii) the greater systematic risk is largely attributable to the greater intrinsic business risk and the greater operating risk of R&D-intensive firms; (iii) R&D-intensive firms carry marginally less financial leverage but they do not differ from other firms in terms of operating leverage; and (iv) our results are particularly strong in the manufacturing sector. For the non-manufacturing sector, the results are not robust for different study periods.

JEL classification: C1; G11; G12

Document Type: Research Article


Affiliations: 1: Business School, National University of Singapore 2: Department of Industrial and Systems Engineering, National University of Singapore

Publication date: November 1, 2004

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