Board Structure, Intra-Industry Competition, and the R&D Announcement Effect

Yin-Hua Yeh (), Pei-Gi Shu (), Fu-Sheng Ho () and Yu-Hui Su ()
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Yin-Hua Yeh: Graduate Institute of Finance, Fu Jen Catholic University, 510, Zhongzheng Road, Xin Zhuang District, New Taipei City 24205, Taiwan
Pei-Gi Shu: Department of Business Administration, Fu Jen Catholic University, Taipei, Taiwan
Fu-Sheng Ho: Program of Business Administration, Fu Jen Catholic University, Taipei, Taiwan
Yu-Hui Su: Department of Accounting, Soochow University, Taipei, Taiwan

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2012, vol. 15, issue 02, 1-31

Abstract: The main purpose of this paper is to investigate how investors perceive and respond to a firm's R&D announcement. We propose that board structure and intra-industry competition jointly dictate the announcement return. In addition, we assume that investors prefer carefully scrutinized R&D investments to mitigate asymmetric-information risks. Finally, we assume that investors prefer a sustainable R&D investment to prevent intense intra-industry competition and to ensure profit potential.We use a sample of 229 announcements made by 116 Taiwanese listed firms to verify our postulation. Our postulation is the abnormal returns are positively correlated with board independence while negatively correlated with board size. We construct two variables to capture intra-industry competition: (i) the number of days that have elapsed since a competitor's prior announcement and (ii) the ordinal number of announcements in the same industry. Our results show that the announcement effect is negatively correlated with industry R&D intensity. The negative effect is partially ameliorated when the lapse since a prior competitor's announcement is long. Moreover, the announcement effect is also lower when the announcing firm has a high-level of R&D intensity and has experienced numerous prior R&D announcements in the same industry.

Keywords: R&D announcement; board structure; industry competition (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (3)

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DOI: 10.1142/S0219091512500117

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