The effect of R&D investment intensity on stock return volatility : evidence from tech firms in the Netherlands

The empirical evidence suggests that R&D intensive firms have a higher stock return. However, there is only little research on the topic between R&D intensity and stock risk. This study addresses this gap using a sample of 44 Dutch tech firms from 2011 to 2019, where volatility is the measure of stock risk. The results show a strong positive relationship between R&D investment intensity and stock return volatility. However, the relationship becomes negative if we measure R&D investment intensity on a firm-specific level, because each firm has multiple observations over the years (panel data). This implies that if a firm decides to increase its R&D investment intensity, the risk for stock investors decreases. Although this might be explained by reaching a next stage in the R&D project, which requires additional investments. As the next stage is achieved, the uncertainty of the R&D investment decreases.