Illiquidity, R&D investment, and stock returns



Ahmed, Shamim ORCID: 0000-0003-3712-5213, Bu, Ziwen and Ye, Xiaoxia ORCID: 0000-0002-5024-6186
(2023) Illiquidity, R&D investment, and stock returns. Journal of Money, Credit and Banking.

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Abstract

<jats:title>Abstract</jats:title><jats:p>We propose a dynamic model of research and development (R&amp;D) venture, which predicts that the positive relation between the firm's R&amp;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&amp;D–return relation among illiquid stocks. A further analysis shows that the important role of illiquidity in the R&amp;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&amp;D premium.</jats:p>

Item Type: Article
Divisions: Faculty of Humanities and Social Sciences > School of Management
Depositing User: Symplectic Admin
Date Deposited: 12 Jul 2022 07:56
Last Modified: 21 Aug 2023 04:13
DOI: 10.1111/jmcb.13053
Related URLs:
URI: https://livrepository.liverpool.ac.uk/id/eprint/3158222