2015/09/01 by Ji‐Chai Lin, Yanzhi Wang · 1 citation
Business, Management and Accounting · Economics, Econometrics and Finance · #Corporate Finance and Governance #Financial Markets and Investment Strategies #Financial Reporting and Valuation Research
paper · doi:10.2308/accr-51270
openalex publication_date 2015/09/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/02
ABSTRACT To explain why firms with high research and development (R&D) intensity offer their investors higher stock returns, we argue that (1) high R&D capacity relative to firm valuation makes R&D-intensive firms attractive takeover targets, and that (2) the higher takeover probability leads their investors to face higher takeover risk, as proposed by Cremers, Nair, and John (2009), and require higher returns. We find evidence consistent with our hypothesis. Furthermore, we find that takeover probability also relates to large R&D increases, but not to innovation efficiency. Accordingly, we expect and find that takeover risk helps to explain the premium associated with large R&D increases, but not the innovation efficiency premium previously documented. JEL Classifications: G12; O31.