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

Qiao Liu
The University of Hong Kong


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.


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

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Last modified: 03/08/2007