Research & Development and Systematic Risk of the Firm: A Study of the Indian Industries

This study aims at analyzing the relationship between firm R&D intensity and market risk using crosssectional data of 333 firms of the Indian industries from 2005 to 2009. For this, a theoretical model has been developed. The results of the theoretical model show that there is an inverse relationship between firm R&D intensity and market risk. The empirical results show that after controlling for accounting variables such as growth (measured by growth rate in sales); dividend pay-out ratio (measured by equity dividend as a percentage of net profit); asset size (measured by total assets of the firm); age of the firm (measured by incorporation year of the firm); leverage (measured by debt-equity ratio); liquidity (measured by current ratio); and sales variability (measured by coefficient of variation in sales) which also influence market risk, an increase in firm R&D intensity lowers the market risk. The control variables which have come out to be significant determinants of market risk are dividend pay-out ratio and sales variability.