THE RELATIONSHIP BETWEEN R&D EXPENSES AND THE ABNORMAL RETURN IN BRAZILIAN FIRMS

Abstract

Purpose: This study aims to analyze the relationship between the abnormal return and R&D expenses in Brazilian public firms. Originality/value: The determinants of firms' abnormal return provide information relevant to investors' decision-making. In this context, we verified whether the innovation, measured by R&D expenses, could be a key factor for the abnormal returns in Brazilian firms. Design/methodology/approach: We analyzed Brazilian public firms, from 2009 to 2016, by panel data regressions, in a sample composed by 1,597 firm-year observations. We collected information about R&D expenses in the footnotes. When a firm only mentioned about R&D expenses but did not disclose spent value in the Income Statement, we consider that the firm did not invest in the period and we attribute zero as a value. We highlighted that few firms mentioned R&D expenses in their footnotes and/or declared that they invested in R&D, only 44 firms in all sample, pointing the importance of better disclosure practices of these investments. Findings: The results demonstrate a negative and statistically significant relationship between innovation and the abnormal return. That is, current R&D expenses lead to a lower current abnormal return. It could be linked with the fact that R&D expenses tend to produce returns just in longer periods, demanding more time to recover these investments, due to their complex characteristics related to accounting measurement of R&D expenses. Consequently, an abnormal return could be perceived only in subsequent periods.

Impact of R&D, patents and innovations disclosure on market capitalization: Russian evidence

“…"R&D expenses" is an indicator that is disclosed to investors in the company's financial statements. Some authors present evidence that there is a significant positive relationship between R&D expenses and the company's market capitalization (Coluccia et al, 2020;Hai et al, 2019;Oliveira et al, 2019;Shen et al, 2017). These studies demonstrate that large R&D expenses can be regarded as a sign of the company's sustainability and its growth in the longterm.…”

“…Innovation activity does not always guarantee complete investment return. It often requires large expenses and takes long to be introduced and implemented (Oliveira et al, 2019). For example, in the research focused on Chinese market Yao et al (2019) concluded that eco-innovations relate negatively to firm value.…”

“…Innovation activity does not always guarantee complete investment return. It often requires large expenses and takes long to be introduced and implemented (Oliveira et al. , 2019).…”

The effect of R&D activities on the market response and company's performance during the shock caused by the COVID-19 pandemic in Iran

“…In addition, this study contributes to the literature (e.g. Zhao, 2021;Tung and Binh, 2021;Xu, 2021;Oliveira et al, 2019) regarding the debates on R&D effect on performance and abnormal return. On the other hand, the coronavirus has now become a global problem and would affect the global economy for the next few years.…”

“…In addition, this study contributes to the literature (e.g. Zhao, 2021; Tung and Binh, 2021; Xu, 2021; Oliveira et al. , 2019) regarding the debates on R&D effect on performance and abnormal return.…”