IDEAS home Printed from https://ideas.repec.org/a/spr/reaccs/v7y2002i2d10.1023_a1020217817156.html
   My bibliography  Save this article

Excess Returns to R&D-Intensive Firms

Author

Listed:
  • Dennis Chambers
  • Ross Jennings
  • Robert B. Thompson

Abstract

Recent studies indicate that both current R&D investment levels and current or recent changes in R&D investment are positively associated with subsequent excess (risk-adjusted) stock returns. The tentative explanation offered for these results is that shares of R&D-intensive firms are “mispriced” because investors fail to see through earnings distortions caused by conservative accounting for R&D costs. However, an alternative explanation is that conventional controls for risk do not completely capture the riskiness of R&D-intensive firms, causing measured excess returns for these firms to be biased upward. This study provides evidence useful for distinguishing between the mispricing and risk explanations for R&D-related excess returns. Overall, our empirical results suggest that the positive association between R&D investment levels and excess returns is more likely to result from failure to control adequately for risk than from mispricing. On the other hand, our results do not rule out the possibility of a second source of excess returns that are due to mispricing and that are associated with changes in the level of R&D investment.

Suggested Citation

  • Dennis Chambers & Ross Jennings & Robert B. Thompson, 2002. "Excess Returns to R&D-Intensive Firms," Review of Accounting Studies, Springer, vol. 7(2), pages 133-158, June.
    • Handle: RePEc:spr:reaccs:v:7:y:2002:i:2:d:10.1023_a:1020217817156
    DOI: 10.1023/A:1020217817156
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1023/A:1020217817156
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1023/A:1020217817156?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Megna, Pamela & Klock, Mark, 1993. "The Impact on Intangible Capital on Tobin's q in the Semiconductor Industry," American Economic Review, American Economic Association, vol. 83(2), pages 265-269, May.
    2. Martha L. Loudder & Bruce K. Behn, 1995. "Alternative Income Determination Rules and Earnings Usefulness: The Case of R&D Costs," Contemporary Accounting Research, John Wiley & Sons, vol. 12(1), pages 185-205, September.
    3. Hirschey, M & Weygandt, Jj, 1985. "Amortization Policy For Advertising And Research And Development Expenditures," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 23(1), pages 326-335.
    4. Bong H. Han & David Manry, 2000. "The Implications of Dispersion in Analysts' Earnings Forecasts for Future ROE and Future Returns," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 27(1&2), pages 99-125.
    5. Doron Nissim & Stephen H. Penman, 2001. "Ratio Analysis and Equity Valuation: From Research to Practice," Review of Accounting Studies, Springer, vol. 6(1), pages 109-154, March.
    6. Bong H. Han & David Manry, 2000. "The Implications of Dispersion in Analysts' Earnings Forecasts for Future ROE and Future Returns," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 27(1‐2), pages 99-125, January.
    7. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Evgeny Lyandres & Le Sun & Lu Zhang, 2005. "Investment-Based Underperformance Following Seasoned Equity Offerings," NBER Working Papers 11459, National Bureau of Economic Research, Inc.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Min, Byoung-Kyu & Qiu, Buhui & Roh, Tai-Yong, 2022. "What drives the dispersion anomaly?," Journal of Banking & Finance, Elsevier, vol. 138(C).
    2. Chan, Konan & Lin, Yueh-hsiang & Wang, Yanzhi, 2015. "The information content of R&D reductions," Journal of Empirical Finance, Elsevier, vol. 34(C), pages 131-155.
    3. Spira, Robin, 2024. "How does ESG rating disagreement influence analyst forecast dispersion?," Junior Management Science (JUMS), Junior Management Science e. V., vol. 9(3), pages 1769-1804.
    4. Villalonga, Belen, 2004. "Intangible resources, Tobin's q, and sustainability of performance differences," Journal of Economic Behavior & Organization, Elsevier, vol. 54(2), pages 205-230, June.
    5. Gharbi, Sami & Sahut, Jean-Michel & Teulon, Frédéric, 2014. "R&D investments and high-tech firms' stock return volatility," Technological Forecasting and Social Change, Elsevier, vol. 88(C), pages 306-312.
    6. Eli Amir & Yanling Guan & Gilad Livne, 2007. "The Association of R&D and Capital Expenditures with Subsequent Earnings Variability," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 34(1‐2), pages 222-246, January.
    7. Hyunbae Chun & Jung-Wook Kim & Randall Morck, 2016. "Productivity growth and stock returns: firm- and aggregate-level analyses," Applied Economics, Taylor & Francis Journals, vol. 48(38), pages 3644-3664, August.
    8. Hall, B.H., 1999. "Innovation and Market Value," Economics Papers 1999-w3, Economics Group, Nuffield College, University of Oxford.
    9. Xiao-Jun Zhang, 2005. "Discussion of “Conservatism, Growth and the Role of Accounting Numbers in Fundamental Analysis Process”," Review of Accounting Studies, Springer, vol. 10(2), pages 261-267, September.
    10. Laurie Hunter & Elizabeth Webster & Anne Wyatt, 2005. "Measuring Intangible Capital: A Review of Current Practice," Australian Accounting Review, CPA Australia, vol. 15(36), pages 4-21, July.
    11. Sami Gharbi & Jean-Michel Sahut & Frédéric Teulon, 2014. "Research & Development And Volatility Of Equity Returns In The French Market," Working Papers 2014-120, Department of Research, Ipag Business School.
    12. Nakano, Makoto & 中野, 誠 & Aoki, Yasuharu, 2016. "What Explains Widening Profitability Dispersion Around The World?," Hitotsubashi Journal of commerce and management, Hitotsubashi University, vol. 50(1), pages 23-46, October.
    13. Maria Ana Vitorino, 2014. "Understanding the Effect of Advertising on Stock Returns and Firm Value: Theory and Evidence from a Structural Model," Management Science, INFORMS, vol. 60(1), pages 227-245, January.
    14. Elisabeth Dedman & Sulaiman Mouselli & Yun Shen & Andrew W. Stark, 2009. "Accounting, Intangible Assets, Stock Market Activity, and Measurement and Disclosure Policy—Views From the U.K," Abacus, Accounting Foundation, University of Sydney, vol. 45(3), pages 312-341, September.
    15. Kamran Ahmed & John Hillier & Elisabeth Tanusasmita, 2011. "R&D profitability, intensity and market‐to‐book: evidence from Australia," Accounting Research Journal, Emerald Group Publishing Limited, vol. 24(2), pages 150-177, September.
    16. Bronwyn H. Hall, 2006. "R&D, productivity and market value," IFS Working Papers W06/23, Institute for Fiscal Studies.
    17. Allan Eberhart & William Maxwell & Akhtar Siddique, 2008. "A Reexamination of the Tradeoff between the Future Benefit and Riskiness of R&D Increases," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 46(1), pages 27-52, March.
    18. Patricia M. Dechow & Richard G. Sloan & Mark T. Soliman, 2004. "Implied Equity Duration: A New Measure of Equity Risk," Review of Accounting Studies, Springer, vol. 9(2), pages 197-228, June.
    19. Patel, Darshak & Ward, Michael R., 2011. "Using patent citation patterns to infer innovation market competition," Research Policy, Elsevier, vol. 40(6), pages 886-894, July.
    20. Nikola Petrovic & Stuart Manson & Jerry Coakley, 2009. "Does Volatility Improve UK Earnings Forecasts?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 36(9‐10), pages 1148-1179, November.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:reaccs:v:7:y:2002:i:2:d:10.1023_a:1020217817156. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.