SHENG-SYAN CHENYu, Chin TeChin TeYuSu, Xuan QiXuan QiSuLai, Shu MiaoShu MiaoLai2023-05-172023-05-172012-1202190915https://scholars.lib.ntu.edu.tw/handle/123456789/631115Building 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.endiversified firms | efficient investment hypothesis | focused firms | internal capital markets hypothesis | Organizational form | R&Dother10.1142/S02190915125001782-s2.0-84871284034https://api.elsevier.com/content/abstract/scopus_id/84871284034