The R&D premium and takeover risk

Ji-chai Lin, Yanzhi Wang

Research output: Journal article publicationJournal articleAcademic researchpeer-review

19 Citations (Scopus)


To explain why firms with high research and development (R&D) intensity offer their investors higher stock returns, we argue that (1) high R&D capacity relative to firm valuation makes R&D-intensive firms attractive takeover targets, and that (2) 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, we find that takeover probability also relates to large R&D increases, but not to innovation efficiency. Accordingly, we expect and find that takeover risk helps to explain the premium associated with large R&D increases, but not the innovation efficiency premium previously documented.
Original languageEnglish
Pages (from-to)955-971
Number of pages17
JournalAccounting Review
Issue number3
Publication statusPublished - 1 May 2016


  • R&D
  • Risk premium
  • Takeover risk

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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