Stock price and systematic risk effects of discontinuation of corporate R&D programs |
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Authors: | Mohsen Saad Zaher Zantout |
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Affiliation: | aAmerican University of Sharjah, P. O. Box 26666 Sharjah, United Arab Emirates |
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Abstract: | We extend the evidence on whether investors impound efficiently into stock prices new disclosures about corporate R&D programs. We find that firms that disclose the discontinuation of some of their R&D programs experience a significant negative announcement-period stock price response which is worse for growth stocks, for small-size firms, and for firms with low operating cash flow. We find no evidence that R&D discontinuing firms experience an event-induced change in their systematic risk. We find evidence of a one-year-long price reversal; however, it is not robust to controlling for possible risk dimensions for firms with R&D capital that the three-factor model does not capture. Evidently, investors' initial response at disclosures of discontinuation of corporate R&D programs is efficient. |
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Keywords: | Market efficiency R& D investment Intellectual property rights Systematic risk |
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