Abstract
Higher firm equity volatility is often associated with non-fundamental trading by investors or constraints on firms’ ability to insulate their value from economic risks. This paper provides evidence that an important determinant of higher equity volatility among R&D-intensive firms is fewer financing constraints on firms’ ability to access growth options. I provide evidence for this effect by studying how persistent shocks to the value of firms’ tangible assets (real estate) affect their subsequent equity volatility. The analysis addresses concerns about the identification of these balance sheet effects and shows that these effects are consistent with broader patterns on the equity volatility of R&D-intensive firms.
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