Focusing on high-technology issuers, this study provides new evidence that managers strategically overinvest in research and development (R&D) projects prior to seasoned equity offerings (SEOs). It corroborates the theoretical prediction that managers with short-term valuation pressure tend to overinvest in long-term projects to elevate investors’ growth expectations (Bebchuk and Stole, 1993). I find that issuers with more intensive pre-SEO R&D expenditures exhibit lower productivity in terms of innovative output and operating performance following offerings, which is a primary manifestation of overinvestment. Such issuers also have higher price run-ups prior to offerings and lower long-term stock returns thereafter, suggesting that investors initially overestimate the future benefits of R&D expenditures but are subsequently disappointed by their low productivity.
Speaker: | Ms Annika Wang, University of California - Berkeley PhD Candidate |
When: |
3.30 - 5.00 pm |
Venue: | School of Accountancy Level 3, Seminar Room 3.3 |
Contact: | Office of the Dean Email: SOAR@smu.edu.sg |