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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27475
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| Title: | The Stock Market Valuation of R&D Leaders |
| Authors: | Lev, Baruch
Radhakrishnan, Suresh
Ciftci, Mustafa |
| Issue Date: | Mar-2006 |
| Series/Report no.: | Baruch Lev-15 |
| Abstract: | We examine future excess returns, earnings variability and stock
volatility of R&D Leaders and Followers. Drawing on the business
strategy literature, which makes a clear distinction between R&D
Leaders and Followers, we show that R&D Leaders do earn significant
future excess returns, while R&D Followers just earn average
returns. We further document that R&D Leaders generate higher future
sales growth, and return-on-assets than Followers. We also tackle the
perennial question of whether the excess returns subsequent to R&D
are due to mispricing or risk, and show that only a small part of the
returns can be attributed to risk compensation. Finally, it has been
documented that R&D expenditures are strongly associated with future
earnings volatility, suggesting that R&D is less reliable
(verifiable) an asset than physical capital. We show that the
association between R&D intensity and future earnings volatility of
R&D Leaders is not lower than that of R&D Followers. Thus,
penetrating the population of R&D firms to distinguish between
R&D Leaders and Followers, we bridge the chasm between the major
findings of the economics/finance strand and the accounting body of
R&D research. |
| URI: | http://hdl.handle.net/2451/27475 |
| Appears in Collections: | Accounting Working Papers
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