Corporate Governance, Product Market Competition, and the Wealth Effect of R&D Spending Changes. Issue 3 (4th December 2016)

• Record Type: Journal Article
• Authors: Liao, Tsai‐Ling; Lin, Wen‐Chun
• Is Part Of: Financial management. Volume 46:Issue 3(2017:Autumn)
• Page Start: 717
• Page End: 742
• Publication Date: 2016-12-04
• Subjects: Corporations -- Finance -- Periodicals; 658.1505
• DOI: 10.1111/fima.12161
• Languages: English
• ISSNs: 0046-3892

Abstract

Abstract : This article examines whether corporate governance and product market competition interact to affect the profitability of corporate research and development (R&D) investments. Firms announcing R&D spending changes experience positive and significant wealth effects, and these effects are mainly driven by good‐governance firms. Investors appear to view announcements of R&D spending changes undertaken by firms with stronger shareholder rights as evidence of value creation. Moreover, the favorable wealth effects are stronger for good‐governance firms in noncompetitive industries than in competitive industries, supporting the argument that good governance substitutes for product market competition.