TY - JOUR
T1 - Illiquidity, R&D investment, and stock returns
AU - Ahmed, Shamim
AU - Bu, Ziwen
AU - Ye, Xiaoxia
N1 - Not yet published as of 06/04/2023.
PY - 2023/4/9
Y1 - 2023/4/9
N2 - We propose a dynamic model of research and development (R&D) venture, which predicts that the positive relation between the firm's R&D investment and the expected stock returns strengthens with illiquidity. Consistent with the model's prediction, empirical evidence based on cross-sectional regressions and double-sorted portfolios largely suggests a stronger and positive R&D–return relation among illiquid stocks. A further analysis shows that the important role of illiquidity in the R&D–return relation cannot be explained by factors, such as financial constraints, innovation ability, and product market competition. Collectively, our results suggest that stock illiquidity is an independent driver of the R&D premium.
AB - We propose a dynamic model of research and development (R&D) venture, which predicts that the positive relation between the firm's R&D investment and the expected stock returns strengthens with illiquidity. Consistent with the model's prediction, empirical evidence based on cross-sectional regressions and double-sorted portfolios largely suggests a stronger and positive R&D–return relation among illiquid stocks. A further analysis shows that the important role of illiquidity in the R&D–return relation cannot be explained by factors, such as financial constraints, innovation ability, and product market competition. Collectively, our results suggest that stock illiquidity is an independent driver of the R&D premium.
UR - http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1538-4616
U2 - 10.1111/jmcb.13053
DO - 10.1111/jmcb.13053
M3 - Article
SN - 0022-2879
JO - Journal of Money, Credit and Banking
JF - Journal of Money, Credit and Banking
ER -