R&D expenditure volatility and stock return: Adjustment costs, earnings management or overinvestment-control?
Abstract
A positive relation between the level of R&D expenditure and firm performance has been widely documented; however, changes to this level may incur adjustment costs, arise from earnings management, or reflect the actions of managers attempting to control technocrats overinvesting in value-decreasing projects. Using 4539 publicly listed US firms in the period 1980-2010, we find a significantly negative relation between the volatility of R&D expenditure and stock return. This relation is stronger for young, R&D-increased firms, and during recessionary periods. These results are consistent with managers manipulating earnings, but to smooth, rather than to improve, their firm’s reported performance.
Document Type
Conference Proceeding
Date of Publication
2016
Publisher
Edith Cowan University
School
School of Business and Law
RAS ID
24033
Copyright
free_to_read
Comments
Xianga, E., Gasbarrob, D., & Ruanb, W. (2016, December). R&D Expenditure Volatility and Stock Return: Adjustment Costs, Earnings Management or Overinvestment-control?. In ECU Business Doctoral and Emerging Scholars Colloquium 2016 (p. 77). Available here