Relationship Between R&D Expense and Stock Performance

The objective of this project is to analyze whether a higher level of research and development (R&D)expense generates a higher stock return for firms. Data include firms from all industries in NorthAmerica in 1980-2017. The empirical methods are the firm-year approach and calendar-timeapproach. Our results show that a high R&D expense impacts the stock performance positively. Further, equal-weighted calendar-time portfolios that are long high R&D firms and short low R&Dfirms result in a significant alpha.