An Examination of Long-Term Abnormal Stock Returns and Operating Performance Following R&D Increases

Download or read book An Examination of Long-Term Abnormal Stock Returns and Operating Performance Following R&D Increases written by Allan Eberhart and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine a sample of 8,313 cases, between 1951 and 2001, where firms unexpectedly increase their research and development expenditures (Ramp;D) by a significant amount. We find consistent evidence of a mis-reaction, as manifested in the significantly positive abnormal stock returns that our sample firms' shareholders experience following these increases. We also find consistent evidence that our sample firms experience significantly positive long-term abnormal operating performance following their Ramp;D increases. Our findings suggest that Ramp;D increases are beneficial investments, and that the market is slow to recognize the extent of this benefit (consistent with investor underreaction).