Title: How Good Is Good News? Technology Depth, Book-to-Market Ratio, and Innovative Events
Reference Number: 1141
Publication Date: June 2005
JEL Classifcation: G12, G14, G24, G34
Author(s):

Qiao Liu
The University of Hong Kong

Abstract:

This paper examines the stock market reactions to the 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 investor expectational errors hypothesis, and suggests that R&D or other intangibles are market value relevant in the high-tech firms.

More:

Published in Journal of Accounting, Auditing, & Finance 21:3 (Summer 2006), pp. 293-321.

Key words: innovative events, abnormal returns, technology depth, book-to-market ratio, value relevance of intangibles

PDF: The paper is no longer available here. Please refer to published source.
Last modified: 03/08/2007