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Research output: Contribution to Journal/Magazine › Journal article › peer-review
Research output: Contribution to Journal/Magazine › Journal article › peer-review
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TY - JOUR
T1 - R&D expenditures and earnings targets
AU - Young, S E
AU - Garcia, B
PY - 2009
Y1 - 2009
N2 - This paper examines whether firms cut R&D spending in response to short-term earnings pressures and how equity markets interpret such behaviour. Failure to report positive earnings and earnings growth increases the probability of a subsequent cut in R&D spending, while pressure to report positive earnings and earnings growth in the current period leads to contemporaneous cuts in R&D investment. On average, investors place less weight on earnings increases accompanied by unexpected cuts in R&D spending. However, the magnitude of the valuation discount varies according to the perceived reason for the cut and the importance of R&D investment as a driver of firm value.
AB - This paper examines whether firms cut R&D spending in response to short-term earnings pressures and how equity markets interpret such behaviour. Failure to report positive earnings and earnings growth increases the probability of a subsequent cut in R&D spending, while pressure to report positive earnings and earnings growth in the current period leads to contemporaneous cuts in R&D investment. On average, investors place less weight on earnings increases accompanied by unexpected cuts in R&D spending. However, the magnitude of the valuation discount varies according to the perceived reason for the cut and the importance of R&D investment as a driver of firm value.
U2 - 10.1080/09638180802016718
DO - 10.1080/09638180802016718
M3 - Journal article
VL - 18
SP - 7
EP - 32
JO - European Accounting Review
JF - European Accounting Review
SN - 0963-8180
IS - 1
ER -