Innovation Awards, Product Segmentation, and Stock Returns
88 Pages Posted: 16 Jan 2018 Last revised: 6 Aug 2019
Date Written: August 3, 2019
Firms winning the R&D 100 Award, a prestigious award for technology breakthroughs in product inventions, provide significantly higher subsequent stock returns. We hypothesize that such return predictability stems from the awarded firms’ access to high-end markets in segmented markets. We develop a model to formalize this hypothesis and find empirical support for its implications as follows: (1) awarded firms are associated with lower product similarity and higher profitability; (2) awarded firms present significantly higher procyclicality and market betas; and (3) the award-return relation is more pronounced in periods of higher aggregate consumption growth and among firms with higher R&D investments.
Keywords: Innovative Product Award, Stock Returns, Product Segmentation, Procyclicality, Consumption Risks, Growth Opportunities
JEL Classification: E23, G12, L22, O31
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