Innovative Originality, Profitability, and Stock Returns

David Hirshleifer, Po-Hsuan Hsu and Dongmei Li

The Review of Financial Studies, 2018, vol. 31, issue 7, 2553-2605

Abstract: We propose that innovative originality is a valuable organizational resource and that owing to limited investor attention and skepticism of complexity, greater innovative originality may be undervalued. We find that firms’ innovative originality strongly predicts higher, more persistent, and less volatile profitability and higher abnormal stock returns, findings that are robust to extensive controls. The return predictive power of innovative originality is stronger for firms with higher valuation uncertainty, lower investor attention, and greater sensitivity of future profitability to innovative originality. This evidence suggests that innovative originality acts as a “competitive moat” and is undervalued by the market. Received November 5, 2015; editorial decision June 12, 2017 by Editor Andrew Karolyi.

Date: 2018
References: Add references at CitEc
Citations: View citations in EconPapers (45)

Downloads: (external link)
http://hdl.handle.net/10.1093/rfs/hhx101 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Innovative Originality, Profitability, and Stock Returns (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:rfinst:v:31:y:2018:i:7:p:2553-2605.

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

The Review of Financial Studies is currently edited by Itay Goldstein

More articles in The Review of Financial Studies from Society for Financial Studies Oxford University Press, Journals Department, 2001 Evans Road, Cary, NC 27513 USA.. Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().