Innovation Awards, Product Segmentation, and Stock Returns

Firms winning the R&D 100 Award, a prestigious award for technology breakthroughs in product inventions, provide significantly higher subsequent stock returns. We hypothesize that such return predictability stems from the awarded firms' access to high-end markets in segmented markets. We develop a model to formalize this hypothesis and find empirical support for its implications as follows: (1) awarded firms are associated with lower product similarity and higher profitability; (2) awarded firms present significantly higher procyclicality and market betas; and (3) the award-return relation is more pronounced in periods of higher aggregate consumption growth and among firms with higher R&D investments