Long-term Growth Forecasts and Market Efficiency with Respect to the Innovative Efficiency of R&D-Intensive Firms

65 Pages Posted: 5 Oct 2016 Last revised: 25 Oct 2021

See all articles by Jeff Zeyun Chen

Jeff Zeyun Chen

Texas Christian University

Philip B. Shane

College of William & Mary - Raymond A. Mason School of Business

Liu Yang

University of Miami

Joseph Zhang

University of Memphis

Date Written: May 23, 2021

Abstract

Prior research finds that investors have difficulty pricing corporate innovation. This paper investigates the role of long-term growth (LTG) forecasting financial analysts in the efficiency of stock prices and consensus sell-side analyst forecasts with respect to information about firms’ innovative efficiency (IE). Our first set of analyses reveal that underreaction to IE-related information dissipates for firms with LTG forecasts. Our second set of analyses further indicate that the credibility of LTG forecasts is crucial for them to influence the stock market and analyst forecast efficiency with respect to IE-related information. This result holds after we control for the quality of other research outputs published by LTG-forecasting analysts. Furthermore, conditional on the existence of other long-term analyst forecasts, we continue to find strong evidence consistent with LTG forecasts facilitating market pricing of IE. Collectively, our results support the notion that credible LTG forecasts serve as effective information channels for enhancing market efficiency with respect to IE-related information.

Keywords: Innovation, Patents, Long-term growth, Analysts’ forecasts, Market efficiency

JEL Classification: G14, M41

Suggested Citation

Chen, Jeff Zeyun and Shane, Philip B. and Yang, Liu and Zhang, Joseph, Long-term Growth Forecasts and Market Efficiency with Respect to the Innovative Efficiency of R&D-Intensive Firms (May 23, 2021). Available at SSRN: https://ssrn.com/abstract=2847334 or http://dx.doi.org/10.2139/ssrn.2847334

Jeff Zeyun Chen

Texas Christian University ( email )

2900 Lubbock Ave
Fort Worth, TX 76109
United States

Philip B. Shane (Contact Author)

College of William & Mary - Raymond A. Mason School of Business ( email )

P.O. Box 8795
Williamsburg, VA 23185
United States

Liu Yang

University of Miami ( email )

Coral Gables, FL 33124
United States

Joseph Zhang

University of Memphis ( email )

FAB 200
School of Accountancy
Memphis, TN Tennessee 38152
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
198
Abstract Views
1,552
Rank
229,978
PlumX Metrics