The Stock Market Valuation of Research and Development Expenditures

Research output: Contribution to journalReview articlepeer-review


We examine whether stock prices fully value firms' intangible assets, specifically research and development (R&D). Under current U.S. accounting standards, financial statements do not report intangible assets and R&D spending is expensed. Nonetheless, the average historical stock returns of firms doing R&D matches the returns of firms without R&D. However, the market is apparently too pessimistic about beaten-down R&D-intensive technology stocks' prospects. Companies with high R&D to equity market value (which tend to have poor past returns) earn large excess returns. A similar relation exists between advertising and stock returns. R&D intensity is positively associated with return volatility.

Original languageEnglish (US)
Pages (from-to)2431-2456
Number of pages26
JournalJournal of Finance
Issue number6
StatePublished - Dec 2001

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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