Investor sentiment, R&D spending and firm performance

Research output: Contribution to journalArticlepeer-review

1 Citation (Scopus)


Prior literature indicates that the stock market is not simply a sideshow but also a factor that impacts corporate operations and decisions. This study examines the effect of a noise factor in the stock market, investor sentiment, on the relationship between the firm’s R&D spending and firm performance. Using a sample of publicly traded firms in the Chinese A-share market between 2006 and 2019, the study demonstrates that R&D spending generally enhances (reduces) firm performance during optimism (pessimism) periods. Concerning the channels through which investor sentiment impacts the R&D spending-firm performance relationship, market-timing effects indicate that firms that time equity issuance during optimism periods experience a positive R&D spending-firm performance relationship, whereas firms that initiate equity repurchase during pessimism periods have a negative R&D spending-firm performance relationship. For catering effects, when firms cater to short-horizon investors, R&D spending reduces firm performance. The results contribute to R&D and behavioural finance literature.

Original languageEnglish
Pages (from-to)6257-6278
Number of pages22
JournalEconomic Research-Ekonomska Istrazivanja
Issue number1
Publication statusPublished - 2022
Externally publishedYes


  • Investor sentiment
  • R&D spending
  • firm performance
  • market-timing


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