Public R&D spending and cross-sectional stock returns

Sheng Syan Chen, Yan Shing Chen, Woan-Lih Liang, Yanzhi Wang*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

18 Scopus citations


Empirical findings on the economic benefits of public research and development (R&D) spending are mixed. We adopt an alternative approach by examining the effect of public R&D spending on stock returns. We find that firms located in states with a greater amount of public R&D spending earn higher abnormal stock returns. The effect persists after accounting for conventional pricing factors and state-level variables, and becomes stronger for firms with greater absorptive capabilities. The abnormal stock returns are not only related to the positive effects of public R&D on firm productivity and incoming spillovers, but are also related to the increased cash flow risk. Policymakers should consider both risk and return effects when making any changes in public R&D investment.

Original languageEnglish
Article number103887
Pages (from-to)1-20
Number of pages20
JournalResearch Policy
Issue number1
StatePublished - Feb 2020


  • Public R&D spending
  • R&D spillovers
  • Stock returns


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