Organizational Form and Long-Run Stock and Operating Performance following Corporate R&D Expenditures

Organizational Form and Long-Run Stock and Operating Performance following Corporate R&D... Building upon two competing hypotheses, the 'efficient investment' hypothesis and the 'internal capital markets' hypothesis, we set out in this study to examine the role of organizational form, in terms of 'focus' versus 'diversification', in explaining the long-run stock and operating performance following corporate R&D expenditure. In a sample of 165 announcements of increases in R&D expenditure, we find that focused announcing firms experience significantly greater long-run stock and operating performance following R&D investment, as compared to diversified announcing firms. Our findings are robust to different methods of generating long-run stock performance, various measures of operating performance and alternative benchmarks for the calculation of abnormal performance. Overall, our results provide convincing evidence to suggest that the 'efficient investment' hypothesis dominates the 'internal capital markets' hypothesis. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Pacific Basin Financial Markets and Policies World Scientific Publishing Company

Organizational Form and Long-Run Stock and Operating Performance following Corporate R&D Expenditures

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Publisher
World Scientific Publishing Company
Copyright
Copyright ©
ISSN
0219-0915
eISSN
1793-6705
D.O.I.
10.1142/S0219091512500178
Publisher site
See Article on Publisher Site

Abstract

Building upon two competing hypotheses, the 'efficient investment' hypothesis and the 'internal capital markets' hypothesis, we set out in this study to examine the role of organizational form, in terms of 'focus' versus 'diversification', in explaining the long-run stock and operating performance following corporate R&D expenditure. In a sample of 165 announcements of increases in R&D expenditure, we find that focused announcing firms experience significantly greater long-run stock and operating performance following R&D investment, as compared to diversified announcing firms. Our findings are robust to different methods of generating long-run stock performance, various measures of operating performance and alternative benchmarks for the calculation of abnormal performance. Overall, our results provide convincing evidence to suggest that the 'efficient investment' hypothesis dominates the 'internal capital markets' hypothesis.

Journal

Review of Pacific Basin Financial Markets and PoliciesWorld Scientific Publishing Company

Published: Dec 1, 2012

Keywords: Organizational form focused firms diversified firms efficient investment hypothesis internal capital markets hypothesis R&D

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