Innovation, Future Earnings, and Market Efficiency
نویسنده
چکیده
This study examines whether patent citation impact, a leading indicator of technology firms’ innovation capabilities, is associated with future earnings and whether this association is appropriately reflected in stock prices and analysts’ earnings forecasts of patent-rich companies. The results indicate that change of patent citation impact is positively associated with future earnings, particularly in industries with relatively short time lags between technological advances and profit realization (e.g., computers, electronics, and medical equipment). The strength of this relation also significantly increases with time for up to five years in the future. Market participants, including investors and analysts, however, do not fully incorporate the implication of enhanced innovation capabilities for future earnings into stock prices and earnings forecasts. This bias is significantly associated with future abnormal stock returns.
منابع مشابه
Future Earnings , and Market Efficiency
This study examines whether patent citation impact, a leading indicator of technology firms’ innovation capabilities, is associated with future earnings and whether this association is appropriately reflected in stock prices and analysts’ earnings forecasts of patent-rich companies. The results indicate that change of patent citation impact is positively associated with future earnings, particu...
متن کاملAnalysts’ Responsiveness and Market Underreaction to Earnings Announcements
This study shows that analysts vary significantly in their responsiveness to earnings announcements, where responsiveness is defined as promptness of analysts’ first forecast revisions for the next quarter since the prior quarterly earnings announcements. Further evidence indicates that analysts’ responsiveness improves the efficiency of their expectations of future earnings immediately after t...
متن کاملKelly Huang of Georgia State University will present “ Earnings Smoothing and Investment Sensitivity to Stock Prices ” on February 18 , 2011 1 : 30 pm in BA 365
Existing research suggests that market misvaluations affect corporate investment, often leading to suboptimal investment. I examine whether earnings smoothing reduces the impact of market misvaluations on corporate investment and in turn enhances investment efficiency. I find that earnings smoothing has a strong negative effect on the sensitivity of corporate investment to stock prices. Further...
متن کاملDo Innovations Really Pay Off? Total Stock Market Returns to Innovation
C often decry an earnings-focused short-term orientation of management that eschews spending on risky, long-term projects such as innovation to boost a firm’s stock price. Such critics assume that stock markets react positively to announcements of immediate earnings but negatively to announcements of investments in innovation that have an uncertain long-term pay off. Contrary to this position, ...
متن کاملEarnings Management and Ownership Retention for Initial Public Offering Firms: Theory and Evidence
This paper investigates, both theoretically and empirically, how earnings management and ownership retention interact, and how these two jointly affect the equilibrium market valuation of IPO firms in the presence of information asymmetry. Analytically, this paper extends the univariate signaling framework of Leland and Pyle (1977) and derives an efficient signaling equilibrium in which both re...
متن کامل