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Stock price and systematic risk effects of discontinuation of corporate R&D programs

Listed author(s):
  • Saad, Mohsen
  • Zantout, Zaher
Registered author(s):

    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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    File URL: http://www.sciencedirect.com/science/article/pii/S0927-5398(09)00019-X
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    Article provided by Elsevier in its journal Journal of Empirical Finance.

    Volume (Year): 16 (2009)
    Issue (Month): 4 (September)
    Pages: 568-581

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    Handle: RePEc:eee:empfin:v:16:y:2009:i:4:p:568-581
    Contact details of provider: Web page: http://www.elsevier.com/locate/jempfin

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