Journal of Financial Economics Vol. 119 No. 2 2016
Product market competition, R&D investment, and stock returns
Abstract
A standard real options model predicts a strong positive interaction effect between research and development (R&D) investment and product market competition. R&D-intensive firms tend to be riskier and earn higher expected returns than R&D-weak firms, particularly in competitive industries. Also, firms in competitive industries earn higher expected returns than firms in concentrated industries, especially among R&D-intensive firms. Intuitively, R&D projects are more likely to fail in the presence of more competition because rival firms could win the innovation race. Empirical evidence largely supports the model׳s predictions.
- DOI
- 10.1016/j.jfineco.2015.09.008
- Volume
- 119
- Issue
- 2
- Pages
- 441-455
- Language
- en
- Sources
- openalex crossref bibtex:phds-export.bib