FROM INNOVATION TO INVESTMENT: A MULTI-SECTOR ANALYSIS OF RESEARCH AND DEVELOPMENT’S ROLE IN SHAPING SIZE AND VALUE EFFECTS ACROSS HIGH-TECH FIRMS

Abstract

In this study, I investigate the influence of research and development (R&D) intensity on stock returns for firms of varying sizes within specific high-technology industries: biotechnology, information technology, and renewable energy. Addressing the overarching question of how R&D intensity influences stock returns within the context of established asset pricing anomalies like the size effect and the value effect, I provide a more nuanced understanding of whether and how R&D investment can amplify or moderate these effects across distinct innovation-driven sectors. I employ a methodology that includes portfolio-based analyses and fixed-effects panel regressions. My results reveal that the relationship between R&D intensity and stock returns varies significantly with firm size and across the specific high-tech sub-industries. Generally, I find evidence that suggests that smaller firms, particularly in the biotechnology sector, exhibit a stronger positive association between lagged R&D investment and future stock returns.