The impact of R&D intensity on the volatility of stock price : A study of the Swedish Market during year 1997-2005

• Main Authors: Yue, Xiabin, Xing, Bo
• Format: Others
• Language: English
• Published: Högskolan i Skövde, Institutionen för teknik och samhälle 2007
• Subjects: R&D intensity; Systematic risk; Operating leverage; Financial leverage; Economics; Nationalekonomi
• Online Access: http://urn.kb.se/resolve?urn=urn:nbn:se:his:diva-202

This thesis investigates the theoretical and empirical relationships between a firm’s R&D investment intensity and the systematic risk of its common stock in Sweden. This is done by examining 38 Swedish firms between 1997 and 2005. An overlapping set of 5-year window is chosen to apply to calculate the variables of the samples. In this thesis, three factors are introduced as a proxy of main constituents of systematic risk: intrinsic business risk, degree of financial leverage and degree of operating leverage. And we use these three constituents to analysis the relationship between R&D investment and systematic risk. The results from Monte Carlos simulations and correlation analysis of our sample show that, in Sweden, firms with higher R&D intensity do face higher stock price volatility in the stock market. At the same time, we attempt to test the relationship among R&D and systematic risk’s three constituents, but find that R&D intensive firms have more financial leverage which is opposite to our expect, which might due to the shortage of data and limitation of our sample selection, and R&D intensive firms do not have obvious relations directly with intrinsic business risk, degree of financial leverage or degree of operating leverage.