Review of Quantitative Finance and Accounting, 18: 5–19, 2002
2002 Kluwer Academic Publishers. Manufactured in The Netherlands.
Are Investor Reactions to R&D Inﬂuenced
by the Corporate Headquarter’s Location?
ZANE L. SWANSON
Assistant Professor of Accounting, Emporia State University, 1200 Commercial St., Emporia, KS 66801
Assistant Professor, Quincy University
Abstract. This study provides evidence that investors react differently to R&D (line item) information according
to the disclosure regimes of a ﬁrm’s headquarters-country. The stock market response is signiﬁcantly lower for
R&D information from code law countries (continental Europe) than for common law countries (such as Britain).
Key words: R&D, asset pricing, international, domestic
JEL Classiﬁcation: M40, G12, G14
Many investors use fundamental analysis based on ﬁrm speciﬁc data to make stock in-
vestment decisions. Company information is developed within an accounting/regulatory
framework that is inﬂuenced by socio-legal factors. Ball et al. (2000) and Radebaugh and
Gray (1997) ﬁnd these features are generally important to investor decision-making on a
Our study examines two key speciﬁc ﬁrm information releases: earnings and R&D ex-
penditures for the security impact attributable to the original accounting/regulatory regimes
of foreign stocks traded in U.S. capital markets. Accounting/regulatory regimes are catego-
rized as British–American (common law) and Continental (code law). An analysis compares
regimes using Lang and Litzenberger’s (1989) limited growth model which hypothesizes
that stock value is a function of existing asset earnings and value-added growth options (as
represented in the current study by R&D expenditures). The current study’s research design
focuses directly on the alternative regulatory inﬂuences because comparison problems (i.e.,
trading costs) between country bourses are eliminated ceteris paribus (sample stocks are
all traded in the U.S.).
This paper beneﬁted from the 1999 International Academy of Business Disciplines and 1999 Multinational
Finance Society conferences.