LAUSR

This paper studies the important but unexplored relationship between R&D investment intensity and different components of stock price volatility. The total volatility of stock price is decomposed into a continuous component and a jump component. We find that firms with higher R&D investment intensity have less jump volatility of stock price. We explain the findings through a channel of stock liquidity and information disclosure. We argue that R&D-intensive firms prefer higher stock liquidity, and empirically document that they achieve higher stock liquidity by actively releasing R&D information. We apply a textual analysis technique and show that R&D-intensive firms voluntarily disclose more R&D information in 10-K, 10-Q and 8-K filings, resulting in higher stock liquidity and hence less jump volatility of stock price. The negative relationship between R&D investment intensity and jump volatility of stock price is more pronounced for financially constrained firms, which have stronger incentives to release R&D information and hence increase stock liquidity. Propensity-score matching approach and instrumental variable approach are used to address endogeneity. A rich set of robustness tests are conducted to confirm the findings.