Download pdf
R&D Investment and Stock Price Crash Risk: An Empirical Study of American Listed Companies
- 1 College of Liberal Arts & Sciences at Illinois, University of Illinois Urbana-Champaign, 901 West Illinois Street, Champaign, United States
* Author to whom correspondence should be addressed.
Abstract
R&D expenditure has long been regarded as an essential driver of firm innovation and long-term growth. However, its impact on extreme stock price declines remains underexplored. This paper investigates whether and how corporate R&D intensity affects the likelihood of stock price crashes among U.S.-listed companies from 2013 to 2023. Building on signaling theory, growth option theory, and agency theory, this study posits that R&D activities may alter a firm’s short-term profitability and shape investor expectations, thereby influencing crash risk. Drawing on a panel dataset from CRSP and Compustat, one employs Probit and OLS regressions to examine both direct and indirect pathways through which R&D investment impacts crash probability. The findings suggest that R&D can, under certain circumstances, mitigate crash risk over a lagged period, whereas firms with higher current profitability are paradoxically more susceptible to crashes. This study contributes to the literature by illustrating the “time-lag effect” of R&D on crash risk and highlights firm size as an important contingency factor. Overall, the results have meaningful implications for corporate managers and investors. Firms seeking to minimize crash risk should carefully plan R&D allocations and manage investor expectations, while stakeholders need to be aware of the potential overvaluation bubbles that may accompany high-profit firms.
Keywords
R&D intensity, stock price crash, profitability, time-lag effect, U.S. listed firms
[1]. Zhang, W. and Wang, L. (2020) M&A goodwill, information asymmetry, and stock price crash risk. Economic Research-Ekonomska Istraživanja, 33(1), 1102-1119.
[2]. Nguyen, P. and Tran, H. (2023) Information asymmetry on the link between corporate social responsibility and stock price crash risk. Cogent Economics & Finance, 11(1), 2230727.
[3]. Zhang, Y. (2023) Artificial intelligence innovation and stock price crash risk. Journal of Financial Research, 45(2), 87-104.
[4]. Chen, J. and Li, S. (2023) R&D intensity and stock price crash risk: Based on OLS multivariate linear regression. ICEMME. EAI, 2326840.
[5]. Liu, X. and Wang, Y. (2019) How asymmetric information creates bubbles in the stock market? Modern Economy, 10(3), 498-512.
[6]. Smith, J. (2021) Three essays on investment decisions and stock price crash risk. Doctoral dissertation, University of Texas at Arlington.
[7]. Chang, X. and Luo, Y. (2018) Stock liquidity and stock price crash risk. Journal of Financial Economics, 129(2), 445-468.
[8]. Li, X. and Chen, Y. (2022) Does social capital matter to stock price crash risk? Evidence from China. Journal of Corporate Accounting & Finance, 33(1), 45-62.
[9]. Wang, Z. and Li, H. (2022) Formative experience and stock price crash risk. Finance Research Letters, 48, 102917.
[10]. Wu, G. and You, D. (2021) Stabilizer" or "catalyst"? How green technology innovation affects the risk of stock price crashes: An analysis based on the quantity and quality of patents. arXiv preprint. Retrieved from https://arxiv.org/abs/2106.16177
[11]. Rocchi, J., Tsui, E.Y.L. and Saad, D. (2016) Emerging interdependence between stock values during financial crashes. arXiv preprint. Retrieved from https://arxiv.org/abs/1611.02549
[12]. Zor, S. (2024) "Digitwashing": The gap between words and deeds in digital transformation and stock price crash risk. arXiv preprint. Retrieved from https://arxiv.org/abs/2403.01360
[13]. Zhao, X. and Wang, Y. (2018). Can corporate innovation restrain the stock price crash risk? Modern Economy, 9(5), 745-758.
[14]. Li, J. and Zhang, H. (2023) Stock price crash risk: Role of corporate innovation and information asymmetry. ResearchGate. Retrieved from https://www.researchgate.net/publication/375989211
[15]. Akerlof, G.A. (1970) The market for "lemons": Quality uncertainty and the market mechanism. Quarterly Journal of Economics, 84(3), 488-500.
[16]. Investopedia. (2023). Asymmetric information in economics explained. Retrieved from https://www.investopedia.com/terms/a/asymmetricinformation.asp.
Cite this article
Liu,M. (2025). R&D Investment and Stock Price Crash Risk: An Empirical Study of American Listed Companies. Advances in Economics, Management and Political Sciences,171,42-49.
Data availability
The datasets used and/or analyzed during the current study will be available from the authors upon reasonable request.
Disclaimer/Publisher's Note
The statements, opinions and data contained in all publications are solely those of the individual author(s) and contributor(s) and not of EWA Publishing and/or the editor(s). EWA Publishing and/or the editor(s) disclaim responsibility for any injury to people or property resulting from any ideas, methods, instructions or products referred to in the content.
About volume
Volume title: Proceedings of the 3rd International Conference on Management Research and Economic Development
© 2024 by the author(s). Licensee EWA Publishing, Oxford, UK. This article is an open access article distributed under the terms and
conditions of the Creative Commons Attribution (CC BY) license. Authors who
publish this series agree to the following terms:
1. Authors retain copyright and grant the series right of first publication with the work simultaneously licensed under a Creative Commons
Attribution License that allows others to share the work with an acknowledgment of the work's authorship and initial publication in this
series.
2. Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the series's published
version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgment of its initial
publication in this series.
3. Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) prior to and
during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work (See
Open access policy for details).