Tel: +44 (0)20 7882 8570
Location: Mile End, Bancroft Building
1st Supervisor: Professor Muradoglu Gulnur
2nd Supervisor: Dr. Deven Bathia
"Firm’s Innovative Activities, Performance and Stock Returns"
I am studying how firms' innovative activities affect their financial performance and stock market returns. The idea basically evolved from interest in financial implications of intellectual capital of the firms and ended up studying the impact of innovative efforts of the firms in form of research and development expenditure they make. Innovation is considered a key for companies to be progressive and competitive and as business environment is becoming more and more dynamic and competitive, companies are investing more of their resources in innovative activities. These innovation efforts of the companies are triggered with their investment in research and development, widely termed as R&D expenditure.
Where R&D is argued to help firms earn more profits and achieve sustainable growth in an innovative environment, it is also linked to the risk factors as well. Unlike physical capital investment, the returns on R&D investment are less certain. Moreover time lapse between input and output, risk of loss of workers, inflexibility, low liquidation value and financial constraints linked with it make R&D a risky investment. So far studies have established a linear relationship of R&D with performance and equity returns. I propose that investors seek an optimal level of R&D, where R&D investment is essential for being competitive and survival and firms which are not investing in R&D are exposed to survival risk but exceeding a certain limit exposes firm to greater degree of distress risk. If company invests less than the optimal amount, there are chances of firm to be at risk of being knocked out due to competitive forces while investing more than optimal amount exposes firm to face distress risk due to financial constraints inherent in R&D investment.