R&D investments and high-tech firms' stock return volatility

• We examine the relation between R&D and stock return volatility.
• We use total stock volatility and idiosyncratic volatility as measures of volatility.
• Increasing R&D intensity will increase stock return volatility.
• R&D reporting method does not affect the relationship between R&D and stock volatility.

The empirical evidence suggests that firms in high-tech industries exhibit high stock return volatility. In this paper, we conceive of the R&D investment intensity as a possible explanation for the stock volatility behavior in these industries. We suggest that R&D activities generate information asymmetry about the prospects of the firm and make its stock riskier. Relying on Panel data models, we investigate this relationship for French high-tech firms. We find out a strong positive relationship between stock return volatility and R&D investment intensity. This finding suggests that R&D intensive firms should implement an efficient information disclosure policy to reduce information asymmetry and to avoid excessive stock return volatility.