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Board Structure, Intra-Industry Competition, and the R&D Announcement Effect

Author

Listed:
  • Yin-Hua Yeh

    (Graduate Institute of Finance, Fu Jen Catholic University, 510, Zhongzheng Road, Xin Zhuang District, New Taipei City 24205, Taiwan)

  • Pei-Gi Shu

    (Department of Business Administration, Fu Jen Catholic University, Taipei, Taiwan)

  • Fu-Sheng Ho

    (Program of Business Administration, Fu Jen Catholic University, Taipei, Taiwan)

  • Yu-Hui Su

    (Department of Accounting, Soochow University, Taipei, Taiwan)

Abstract

The main purpose of this paper is to investigate how investors perceive and respond to a firm's R&D announcement. We propose that board structure and intra-industry competition jointly dictate the announcement return. In addition, we assume that investors prefer carefully scrutinized R&D investments to mitigate asymmetric-information risks. Finally, we assume that investors prefer a sustainable R&D investment to prevent intense intra-industry competition and to ensure profit potential.We use a sample of 229 announcements made by 116 Taiwanese listed firms to verify our postulation. Our postulation is the abnormal returns are positively correlated with board independence while negatively correlated with board size. We construct two variables to capture intra-industry competition: (i) the number of days that have elapsed since a competitor's prior announcement and (ii) the ordinal number of announcements in the same industry. Our results show that the announcement effect is negatively correlated with industry R&D intensity. The negative effect is partially ameliorated when the lapse since a prior competitor's announcement is long. Moreover, the announcement effect is also lower when the announcing firm has a high-level of R&D intensity and has experienced numerous prior R&D announcements in the same industry.

Suggested Citation

  • Yin-Hua Yeh & Pei-Gi Shu & Fu-Sheng Ho & Yu-Hui Su, 2012. "Board Structure, Intra-Industry Competition, and the R&D Announcement Effect," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 15(02), pages 1-31.
    • Handle: RePEc:wsi:rpbfmp:v:15:y:2012:i:02:n:s0219091512500117
    DOI: 10.1142/S0219091512500117
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    References listed on IDEAS

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    1. Rachel Griffith, 2001. "Product market competition, efficiency and agency costs: an empirical analysis," IFS Working Papers W01/12, Institute for Fiscal Studies.
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    Cited by:

    1. Cheng-Few Lee & Chengru Hu & Maggie Foley, 2021. "Differential risk effect of inside debt, CEO compensation diversification, and firm investment," Review of Quantitative Finance and Accounting, Springer, vol. 56(2), pages 505-543, February.
    2. Qing L. Burke & Tim V. Eaton & Mengying Wang, 2019. "Trade liberalization and conditional accounting conservatism: evidence from import competition," Review of Quantitative Finance and Accounting, Springer, vol. 53(3), pages 811-844, October.
    3. Ann Ling-Ching Chan & Edward Lee & Jirada Petaibanlue & Ning Tan, 2017. "Do board interlocks motivate voluntary disclosure? Evidence from Taiwan," Review of Quantitative Finance and Accounting, Springer, vol. 48(2), pages 441-466, February.

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    More about this item

    Keywords

    R&D announcement; board structure; industry competition;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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