The Effect of R&D Expenditures on Stock Returns, Price. A study on biotechnological and pharmaceutical industry in the US market

Abstract

This paper examines how stock returns, price and volatility are affected by R&D expenditures for biotechnological and pharmaceutical firms in the US during the period 2002 – 2013. We test three hypotheses; R&D expenditures are related with significant positive stock returns; R&D expenditures have a positive effect on stock price; R&D expenditures and volatility are positively linked. Based on our results we fail to reject the first hypothesis, while we reject the second and the third hypothesis. We make a robustness check and divide the sample in two groups based on their R&D expenditures. For firms with more than $100 million in R&D expenditures we observe: a positive significant effect of R&D to market value on stock returns; a positive significant effect of R&D capital to sales and R&D intensity on stock price; and a negative significant effect of R&D capital to sales on stock price volatility.