Stock price and systematic risk effects of discontinuation of corporate R&D programs
AbstractWe 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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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Empirical Finance.
Volume (Year): 16 (2009)
Issue (Month): 4 (September)
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Web page: http://www.elsevier.com/locate/jempfin
Market efficiency R&D investment Intellectual property rights Systematic risk;
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