How good is good news? technology depth, book-to-market ratio, and innovative events
نویسندگان
چکیده
This paper examines the stock market reactions to US biotech firms’ innovation news announcements during 1983-1993. Besides the positive abnormal returns observed during the announcement period, the paper identifies a medium-horizon negative drift in the stock price subsequent to firms’ innovative events. The observed negative drift is robust to the benchmarks and procedures used in calculating the abnormal returns. Cross-sectional analysis demonstrates that the post-announcement abnormal returns are positively related to a firm’s technology depth (measured by R&D intensity) and book-to-market ratio, negatively related to the size. The evidence favors the investors’ expectational error hypothesis and supports the view that R&D or other intangibles are market value relevant in the high-tech industry. JEL Classification: G12, G14, G24, G34
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