PDF iconDownload This Paper
Open PDF in Browser
Add Paper to My Library
Permalink
Using these links will ensure access to this page indefinitely
Copy URL
Copy DOI

Innovation under Pressure

63 Pages Posted: 5 Sep 2020 Last revised: 17 Jan 2024

See all articles by Heitor Almeida

Heitor Almeida

University of Illinois at Urbana-Champaign; National Bureau of Economic Research (NBER)

Vyacheslav Fos

Boston College - Department of Finance; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Po-Hsuan Hsu

National Tsing Hua University - Department of Quantitative Finance; National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER)

Mathias Kronlund

The University of Illinois at Urbana-Champaign; European Corporate Governance Institute (ECGI)

Kevin Tseng

The Chinese University of Hong Kong (CUHK) - CUHK Business School; National Taiwan University - Department of Finance

Date Written: February 2, 2023

Abstract

Firms become more efficient at innovation activities when they face pressure to meet EPS targets using stock repurchases. Using a regression-discontinuity framework, we find that incentives to engage in “EPS-motivated buybacks” are followed by more citations and higher values for firms’ new patents. We trace these effects to improved allocation of R&D resources and a greater focus on novel innovation. The positive effects are concentrated among ex-ante “innovation-efficient” firms that achieve better patenting outcomes after reorganizing (but not cutting) their R&D investments. Our findings illustrate that short-term earnings pressures can act through a free-cash-flow channel that motivates more efficient spending.

Keywords: Innovation, short-termism, EPS management, patents, trademarks, exploration

JEL Classification: G31, O31, G35, M20, M41

Suggested Citation

Almeida, Heitor and Fos, Vyacheslav and Hsu, Po-Hsuan and Kronlund, Mathias and Tseng, Kevin, Innovation under Pressure (February 2, 2023). Available at SSRN: https://ssrn.com/abstract=3663903 or http://dx.doi.org/10.2139/ssrn.3663903

Heitor Almeida

University of Illinois at Urbana-Champaign ( email )

515 East Gregory Drive
4037 BIF
Champaign, IL 61820
United States
217-3332704 (Phone)

HOME PAGE: http://www.business.illinois.edu/FacultyProfile/faculty_profile.aspx?ID=11357

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Vyacheslav Fos

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Po-Hsuan Hsu (Contact Author)

National Tsing Hua University - Department of Quantitative Finance ( email )

101, Section 2, Kuang-Fu Road
Hsinchu, Taiwan 300
China

National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER) ( email )

BIZ 2 Storey 4, 04-05
1 Business Link
Singapore, 117592
Singapore

Mathias Kronlund

The University of Illinois at Urbana-Champaign ( email )

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Kevin Tseng

The Chinese University of Hong Kong (CUHK) - CUHK Business School ( email )

Cheng Yu Tung Building
12 Chak Cheung Street
Shatin, N.T.
Hong Kong

National Taiwan University - Department of Finance ( email )

1, Sec. 4, Roosevelt Road
Taipei, 106
Taiwan

PDF iconDownload This Paper
Open PDF in Browser

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

Place Job Opening

Paper statistics

Downloads
1,102
Abstract Views
4,681
Rank
42,988
72 References
PlumX Metrics

Related eJournals