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Organizational Form and Long-Run Stock and Operating Performance following Corporate R&D Expenditures


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  • Sheng-Syan Chen

    (Department of Finance, College of Management, National Taiwan University, No. 1, Sec. 4, Roosevelt Road, Taipei City 106, Taiwan, R.O.C)

  • Chin-Te Yu

    (Department of Finance, College of Management, National Taiwan University, No. 1, Sec. 4, Roosevelt Road, Taipei City 106, Taiwan, R.O.C)

  • Xuan-Qi Su

    (Department of Finance, College of Finance and Banking, National Kaohsiung First University of Science and Technology, No. 2, Jhuoyue Road, Nanzih District, Kaohsiung City 811, Taiwan, R.O.C)

  • Shu-Miao Lai

    (Department of Accounting, School of Commerce, Kainan University, No. 1, Kainan Road, Luzhu Shiang, Taoyuan 338, Taiwan, R.O.C)

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    Building upon two competing hypotheses, the 'efficient investment' hypothesis and the 'internal capital markets' hypothesis, we set out in this study to examine the role of organizational form, in terms of 'focus' versus 'diversification', in explaining the long-run stock and operating performance following corporate R&D expenditure. In a sample of 165 announcements of increases in R&D expenditure, we find that focused announcing firms experience significantly greater long-run stock and operating performance following R&D investment, as compared to diversified announcing firms. Our findings are robust to different methods of generating long-run stock performance, various measures of operating performance and alternative benchmarks for the calculation of abnormal performance. Overall, our results provide convincing evidence to suggest that the 'efficient investment' hypothesis dominates the 'internal capital markets' hypothesis.

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    Bibliographic Info

    Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal Review of Pacific Basin Financial Markets and Policies.

    Volume (Year): 15 (2012)
    Issue (Month): 04 ()
    Pages: 1250017-1-1250017-32

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    Handle: RePEc:wsi:rpbfmp:v:15:y:2012:i:04:p:1250017-1-1250017-32

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    Keywords: Organizational form; focused firms; diversified firms; efficient investment hypothesis; internal capital markets hypothesis; R&D;

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