Absorptive Capacity, Technology Spillovers, And The Cross-Section Of Stock Returns

Keywords

Innovation; Limited attention; Market efficiency; R&; D; Spillover

Abstract

In the presence of potential technology spillovers, I demonstrate that a firm's absorptive capacity (AC), as proxied by R&D investments, is crucial to benefit from spillovers. I find that higher AC firms, when exposed to large potential spillovers, exhibit stronger future real outcomes (cite-weighted patents and operating performance) and market value. Importantly, however, this value-relevant information does not appear to be immediately incorporated into stock prices, leading to high future abnormal stock returns for firms with high AC and spillover exposure. Furthermore, the undervaluation is most pronounced among low investor attention stocks, suggesting that limited attention contributes to the undervaluation.

Publication Date

12-1-2017

Publication Title

Journal of Banking and Finance

Volume

85

Number of Pages

146-164

Document Type

Article

Personal Identifier

scopus

DOI Link

https://doi.org/10.1016/j.jbankfin.2017.08.016

Socpus ID

85032663389 (Scopus)

Source API URL

https://api.elsevier.com/content/abstract/scopus_id/85032663389

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