National Taiwan University, Feng Chia Universty, Yuan Ze University
Abstract:
Consistent with the research and development (R&D) spillover effect, we show that when a firm unexpectedly increases R&D spending, its industry competitors experience improvements in operating performance and earn positive abnormal stock returns in the long run. That is, R&D increases are beneficial to their rivals, and the market is slow to react to this benefits. However, the industry concentration, which proxies for firm’s strategic reaction, is crucial in determining the magnitude of long-run R&D spillover effect. The abnormal portfolio returns of intra-industry rivals are lower in more concentrated industries, and vice versa.
