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Journal of Finance Vol. 59 No. 2 2004

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

Allan C. Eberhart1; William F. Maxwell1; Akhtar R. Siddique2,1,3

1 Georgetown University · 2 Office of the Comptroller of the Currency · 3 Office of the Chief Scientist

open access

Abstract

We examine a sample of 8,313 cases, between 1951 and 2001, where firms unexpectedly increase their research and development (R&D) expenditures by a significant amount. We find consistent evidence of a misreaction, 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 R&D increases. Our findings suggest that R&D increases are beneficial investments, and that the market is slow to recognize the extent of this benefit (consistent with investor underreaction).

DOI
10.1111/j.1540-6261.2004.00644.x
Volume
59
Issue
2
Pages
623-650
Language
en
Sources
openalex bibtex:phds-export.bib crossref

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