Finance Seminar（2015-08）

Topic: R&D premiumand Takeover Risk*

Speaker: Ji-Chai Lin, Hong Kong Polytechnic University

Time: Wednesday, 8April, 10:00-11:30

Location: Room K01, Guanghua Building 2

Abstract: To explain why firms with high R&D intensity offer their investors higher stock returns, we posit that (i) high R&D capacity relative to firm valuation makes R&D-intensive firms attractive takeover targets, and (ii) 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, takeover probability is also related to large R&D increases, but not to innovation efficiency. Accordingly, we expect, and find, that takeover risk helps explain the premium associated with large R&D increases, but not the innovation efficiency premium, documented in the literature.