Organizational form and long-run stock and operating performance following corporate r&d expenditures
Journal
Review of Pacific Basin Financial Markets and Policies
Journal Volume
15
Journal Issue
4
Date Issued
2012-12
Author(s)
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. © 2012 World Scientific Publishing Co. and Center for Pacific Basin Business, Economics and Finance Research.
Subjects
diversified firms | efficient investment hypothesis | focused firms | internal capital markets hypothesis | Organizational form | R&D
Type
other