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Abstract

In a context of compelling evidence from both the US and UK suggesting that R&D investment is positively related to operating and/or market performance, at a first stance this PhD Thesis examines the relation between R&D investment and persistence in operating and market performance using a large dataset of UK companies during the period 1990-2003. The findings confirm the relation between R&D intensity and consistent growth in sales and gross income but only when taking the industry sector in which a firm operates into account. Moreover, the evidence found indicates a positive relation between R&D intensity and subsequent risk-adjusted excess stock returns among firms that engage in R&D. There is also shown that R&D intensity improves persistence in excess stock returns: the highest R&D intensity firms are found to earn higher risk-adjusted excess returns than the sample median return more consistently, compared to lower R&D intensity firms, as well as firms with no R&D. The weight of the evidence is consistent with some form of mispricing related to the market's slow adjustment to the emerging evidence of significant enhancement in operating performance following recent R&D investment. The Thesis also examines whether R&D plays a role in the relationship between dispersion in analysts' earnings forecasts and returns, given that R&D has been testified empirically in prior literature as an influencing factor for both forecast dispersion and stock returns separately, and forecast dispersion on its own has been identified as a factor with an impact on returns. In addition, in the context of existing evidence on R&D being positively related with greater analyst forecast errors, the Thesis goes one step further and examines the impact of R&D, intensity on forecast revisions. The hypothesis is in favour of a positive association between R&D and the magnitude of revisions, due to the inherent uncertainty of the R&D investment. These topics are examined again for UK listed firms in the period 1990-2003 and there is testified that R&D intensity is a contributing factor for analyst forecast dispersion for the UK, confirming prior findings for the US. There is confirmed a negative relationship between forecast dispersion and returns, which is found to hold even after controlling for the impact of R&D on returns. After decomposing dispersion in analysts' forecasts into analyst forecast uncertainty and a pure differences in opinion part, there is also found that as R&D intensity increases, the ability of R&D to influence returns also increases for high dispersion and high forecast uncertainty firms, but the ability of R&D to influence returns is getting very week for high divergence of opinion firms. This finding implies that in the presence of high R&D intensity, dispersion has an impact on returns mainly through the forecast uncertainty component of forecast dispersion, and not through the divergence of opinion component. Finally, there is generally found a positive relationship between R&D intensity and forecast errors and revisions, which is most times statistically significant though only in the case of revisions, when there exists a reasonable amount of time between the initial and the revised analyst forecast, after controlling for other factors.

Publication Type:	Thesis (Doctoral)
Subjects:	H Social Sciences > HF Commerce > HF5601 Accounting
Departments:	Bayes Business School Doctoral Theses Bayes Business School > Bayes Business School Doctoral Theses

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