The Response of Capital Markets to the R&D Process

摘要

We examine the response of the capital markets to research and development (R&D) project announcements by firms along three stages of the R&D process: initiation, continuation, and new-product introduction. Using event study methodology, conventional in financial economics and strategic management, we examined 525 R&D project announcements over the 1977-1989 period. Our analysis suggests that investors respond favorably to R&D announcements during the continuation and new-product introduction stages. In the biotechnology industry, however, the greatest response occurred in the initiation and continuation stages. Significant gains in wealth were observed for relatively smaller firms, and in the case of continuation announcements when R&D was viewed as a way of stimulating growth. After accounting for firm size and the effect of the biotechnology industry, the frequency of R&D announcements by firms does not lead to greater stock market effects. Our data paint a picture of rational and sophisticated investors who understand and respond to R&D project announcements — a portrait that stands in stark contrast to the current criticisms of a myopic stock market.