Innovation and Firm Performance: Evidence from the Capital Market
University of Maryland, Eastern Shore; University of Maryland, College Park
May 30, 2012
Journal of Modern Accounting and Auditing, 9(4), Forthcoming
This paper examines the role of innovation in firm performance by drawing empirical evidence from the capital market. The current study analyzes risk premiums and risk-adjusted excess returns of a portfolio of the most innovative firms in the United States from 2006 to 2010. The results show that average risk premiums of an equal-weighted portfolio of the most innovative firms in the United States are economically larger than the CRSP value-weighted index risk premiums 4 years in a row from 2006 to 2009 and are economically greater than the S&P 500 index risk premiums from 2006 to 2010. The portfolio exhibits average statistically significant positive risk-adjusted excess returns for the 3-year and 5-year holding period intervals. The findings serve as evidence of the favorable role of innovation in firm performance.
Number of Pages in PDF File: 7
Keywords: risk premiums, risk adjusted excess returns, innovation
JEL Classification: G11, G12, G14Accepted Paper Series
Date posted: May 30, 2012 ; Last revised: November 22, 2012
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