Tuesday, October 16, 2012

NGOBO Paul Valentin, GATIGNON Hubert
Explaining Cross-country Differences in the Effects of R&D Expenditures on Risk and Stock Returns
INSEAD Working Paper 2012/98/MKT

The role of R & D spending has been assessed in a number of fields including marketing, economics, finance and strategic management. However, this research has been dominated by single-country studies. The differences in country environments in which investors value the company's R & D expenditures have not been examined. We examine the extent to which investors’ response to R and D expenditures differs across a broad range of countries. Our analysis is based on data from more than 5,000 companies in 25 countries over 14 years. A hierarchical linear model with latent variables is estimated on this global database. Our analysis reveals that the effects of R&D on stock returns, systematic risk, and idiosyncratic risk vary significantly across countries. The way a country protects investors’ interests, the innovativeness of the country and its religious affiliations explain the extent to which R & D expenditures influence stock returns, systematic risk and idiosyncratic risk.