Size, Leverage, Concentration, and R&D Investment in Generating Growth Opportunities

We show that a firm's ability to reap growthopportunities from R&D investments depends on its size, leverage, and theindustry concentration. While the direct effects of these factors are significant, the size-leverageinteraction reveals further important insights. Large firms' advantages oversmall firms disappear as their leverage increases. Specifically, small firmswith high leverage reap the greatest growth opportunities. Our results provide explanations for inconsistent findings observed whensize and leverage are considered independently in existing studies on value andstock return relevance of R&D investment. We also highlight firm-specificfactors that guide investors' valuation of R&D. (Publicationabstract)