THE MARKET REWARDS PROMISING R&D—AND PUNISHES THE REST

R&D and Tobin's q in an emerging financial market: the case of the Athens Stock Exchange

“…Since no data set for innovations news report is issued in Greece, we may consider the current R&D impact on market valuation of the firm as a signal to the market that the firm is investing in innovations. In such a case, our finding supports the one by Chan et al (1990Chan et al ( , 1992Chan et al ( , 2001) for the 'new news' reports by the firm. The announcement of the reported R&D investment drives an immediate positive market response giving a premium to the innovative firm leading to a higher Tobin's q.…”

“…(Chan et al, 1992), affects the market value confirming that markets positively value the future prospects of the innovative firm.…”

“…The R&D stock is reported as a subsection of the intangible assets in the balance sheet. Chan et al (1992) argue that large firms may have better prospects for completing the R&D project followed by a successful production and marketing plan. On the other hand, managerial inefficiencies and organizational inertia associated with large size might counteract the advantage of size.…”

“…This argument is based on a widely held belief that markets suffer from a form of myopia (Chan et al, 1992) and, hence, any investment with long run payoffs, such as R&D investment, is not reflected in the current stock prices because investors choose to maximize current earnings. If the equity market is myopic, it might be expected to react negatively to announcements of R&D expenditure increases.…”

Analysts’ forecast revisions and firms’ research and development expenses

“…Another set of studies indicate that capital markets consider R&D as a significant value increasing activity. For example, (Chan et al, 1992) document a significantly positive market reaction to corporate announcements of new R&D, particularly for firms in hightechnology sectors that employ cutting edge technology.…”