Empirical Test On Investment In Innovation Capacity And Stock Expected Return

The value of innovative capacity is composed of the value of assets-in-place(AIP)and the growth option.With the increase of investment in the innovation capacity,the growth option is continuously accumulated or executed,the weight of the assets in place and the growth option in total assets will change,thus changing the company's overall systemic risk,and affecting the expected return on the stock.At the same time,as the scale of investment in innovation capacity continues to increase,the newly future acquired cash flow will be more constrained by the high investment level of innovation capacity.Therefore,the impact of innovation capacity investment on the stock expected return is a dynamic process.In different periods of growth options,different size firm,the investment in innovation capacity has different effects on stock expected returns.This article first elaborates the research background and significance of the relationship between innovation capability investment and stock expected return.Based on the theoretical study of related literature,we make assumptions based on the impact conditions of innovative capacity investment and stock expected return.,established a model of the impact of innovation capacity investment on the stocks expected return,and analyzing and predicting the dynamic relationship between the company's innovation capacity investment and stock expected return.Further,from an empirical perspective,we selected 3052 non-financial A-share and B-share listed companies in China's Shanghai and Shenzhen stock markets from 2006 to 2016 as sample data,and based on the unified model framework and the Fama-French threefactor pricing model.Using the Fama & Macbeth two-step cross-section regression method,we empirically test the dynamic influence between firm's innovation capacity investment and expected stock return.Our model predicts that the firm's innovation capacity investment has different influence on the stock expected return before and after the firm's growth option.In the period before the growth option present,the impact of the innovation capacity investment on the stock expected return is ambiguously.In the period after the growth option presented or executed,the uncertainties in growth option are eliminated,for firms with nonincreasing the return of innovation capacity investment,the innovation capacity investment on stock expected return is significantly positive.At the same time,it is estimated that the firm with high innovation capacity investment will have higher investment level and expected profitability in the future.Further,we use RDS(the ratio of R&D to sales)as the proxy variable of innovation capacity investment and analyze the dynamic impact of RDS on the stock expected rate by controlling the firm's scale factor.We have the same result.And provided strong empirical support for our model predictions.