The Wealth Effects of Announcements of R&D Expenditure Increases
We examine the effect of announcements of plans to increase R&D expenditures on the stock price of rival firms. We test two alternative hypotheses: the first-to-innovate hypothesis versus the free-rider of spillovers hypothesis. Analysis of 114 announcements of increases in R&D expenditures indicates that rival firms suffer a statistically significant negative abnormal return at announcement, which supports the first-to-innovate hypothesis. This result provides a rationale for the potentially costly voluntary disclosure of R&D expenditures. A cross-sectional analysis of the abnormal returns to rival firms reveals that a highly credible announcement has some spillover effects, and that the rival firm earns a much smaller but positive abnormal return. An important implication is that it is always strategically beneficial for the firm to disclose its future R&D plan.
Year of publication: |
1994
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Authors: | Zantout, Zaher Z ; Tsetsekos, George P |
Published in: |
Journal of Financial Research. - Southern Finance Association - SFA, ISSN 0270-2592. - Vol. 17.1994, 2, p. 205-16
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Publisher: |
Southern Finance Association - SFA Southwestern Finance Association - SWFA |
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