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Research Intensity and Financial Analysts Earnings Forecast: Signaling Effects of Patents

Author

Listed:
  • Mohammadi, Ali

    (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)

  • Basir, Nada O.

    (Faculty of Business and IT, University of Ontario Institute of Technology)

  • Beyhaghi, Mehdi

    (College of Business,University of Texas at San Antonio)

Abstract

In this paper, we study how R&D investment affect financial analyst’s earnings forecasts and how intellectual capital endowments moderate this effect. We argue that high information asymmetry and uncertainty associated with R&D investment increase a financial analysts’ earnings forecast error. Patents can remedy this relationship by signaling the ability of a firm in transforming research investments into new and valuable knowledge. Using a panel of 2,253 publicly listed U.S firms, we find that higher R & D intensity is positively correlated with financial analysts’ earnings forecast error. The endowment of intellectual capital (i.e. patents) moderates this relationship negatively. However we do not find any moderating effect for the value of patents measured as forward citations.

Suggested Citation

  • Mohammadi, Ali & Basir, Nada O. & Beyhaghi, Mehdi, 2015. "Research Intensity and Financial Analysts Earnings Forecast: Signaling Effects of Patents," Working Paper Series in Economics and Institutions of Innovation 397, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
    • Handle: RePEc:hhs:cesisp:0397
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    More about this item

    Keywords

    R&D intensity; Analyst forecasts; Patent; information asymmetry; uncertainty; Capital market;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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