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The Impact of Corporate Diversification on the Long-Term Stock Return of R&D Increase Announcements

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  • Li-Yu Chen
  • Chi-Feng Wang

Abstract

Prior studies have tested the long-term performance of research and development (R&D) spending, but the results are inconclusive. This study extends this line of research and explores the impact of corporate diversification on the long-term stock returns on R&D increase announcements. After controlling for the important variables in explaining the performance of R&D increases, a significantly negative association is found between the degree of corporate diversification and the long-run stock returns on R&D increase announcements. This result suggests that the costs of corporate diversification dominate the benefits regarding corporate diversification, and highlight the important effect a firm's diversification strategy has on the market valuation of R&D innovation.

Suggested Citation

  • Li-Yu Chen & Chi-Feng Wang, 2013. "The Impact of Corporate Diversification on the Long-Term Stock Return of R&D Increase Announcements," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 49(S4), pages 267-279, September.
    • Handle: RePEc:mes:emfitr:v:49:y:2013:i:s4:p:267-279
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    Cited by:

    1. Askarany, Davood & Spraakman, Gary, 2020. "Regional diversification and financial performance through an excess-capacity theory lens: A new explanation for mixed results," Technological Forecasting and Social Change, Elsevier, vol. 156(C).
    2. Chen, Li-Yu & Lai, Jung-Ho & Chang, Shao-Chi, 2017. "The long-term performance of new product introductions," Finance Research Letters, Elsevier, vol. 20(C), pages 162-169.

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