Stock price and systematic risk effects of discontinuation of corporate R&D programs

Mohsen Saad and Zaher Zantout

Journal of Empirical Finance, 2009, vol. 16, issue 4, 568-581

Abstract: We extend the evidence on whether investors impound efficiently into stock prices new disclosures about corporate R&D programs. We find that firms that disclose the discontinuation of some of their R&D programs experience a significant negative announcement-period stock price response which is worse for growth stocks, for small-size firms, and for firms with low operating cash flow. We find no evidence that R&D discontinuing firms experience an event-induced change in their systematic risk. We find evidence of a one-year-long price reversal; however, it is not robust to controlling for possible risk dimensions for firms with R&D capital that the three-factor model does not capture. Evidently, investors' initial response at disclosures of discontinuation of corporate R&D programs is efficient.

Keywords: Market; efficiency; R&D; investment; Intellectual; property; rights; Systematic; risk (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:16:y:2009:i:4:p:568-581

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