Journal article
The effect of R&D on future returns and earnings forecasts
Review of accounting studies, Vol.17(4), pp.848-876
12/01/2012
DOI: 10.1007/s11142-011-9179-y
Abstract
Prior studies attribute the future excess returns of research and development activity (R&D) firms to either compensation for increased risk or to mispricing. We suggest a third explanation and show that neither the level of R&D investment nor the change in R&D investment explains future returns. Rather, the positive future returns that prior studies attribute to R&D investment are actually due to the component of the R&D firm's realized return that is unrelated to R&D investment but present in R&D firms. Our results suggest that the excess returns of R&D firms are part of the larger value/growth anomaly. In addition, we show that while future earnings are positively associated with current R&D, errors in earnings expectations by investors and analysts are not related to R&D investment.
Details
- Title: Subtitle
- The effect of R&D on future returns and earnings forecasts
- Creators
- Dain C. Donelson - The University of Texas at AustinRobert J. Resutek - Dartmouth College
- Resource Type
- Journal article
- Publication Details
- Review of accounting studies, Vol.17(4), pp.848-876
- Publisher
- Springer Nature
- DOI
- 10.1007/s11142-011-9179-y
- ISSN
- 1380-6653
- eISSN
- 1573-7136
- Number of pages
- 29
- Language
- English
- Date published
- 12/01/2012
- Academic Unit
- Accounting; Law Faculty
- Record Identifier
- 9984380506402771
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