The Impact of R&D Activity for Earnings persistence

• Main Authors: Yi-Ping Chen, 陳義平
• Other Authors: Ming-Che Lu
• Format: Others
• Language: zh-TW
• Published: 2009
• Online Access: http://ndltd.ncl.edu.tw/handle/30286301257499476245

碩士 === 朝陽科技大學 === 會計所 === 97 === Prior researches show that intellectual capitals and R&D investments contribute to firms’ future profitability. This study decomposes the earnings into normal earnings, residual earnings before R&D expensing, and negative R&D expense. Then the relationships between three components of current earnings and future earnings are discussed. Moreover, Mishkin (1983) framework is applied to test for market efficiency in reflecting three components of current earnings with respect to future earnings implications. This empirical study covers the period from 1988 to 2007. Research sample includes the firms listed in TSE or OTC markets. Thus, sample size is 9712. Empirical results reveal that (1) the persistence of residual earnings before expensing is highest and significantly higher than that of negative R&D expense, indicating that after controlling for current earnings, R&D expenditures is helpful to future earnings; (2) the negative R&D expense is positively associated with future earnings during the four years significantly, indicating that after controlling for current earnings before R&D expensing, R&D expenditures is harmful to future earnings during the four years; (3) the normal earnings is merely positively associated with future earnings during the three years, indicating that after controlling for current residual earnings, normal earnings fails to persist to future earnings in three years. The testing results of market efficiency reveal that market over-reflects the relationships between three components of current earnings and future earnings, however, do not significantly overprice negative R&D expense with respect to future earnings in three years. On the other hand, investors think that R&D expenditures fail to improve future earnings during the four years, but are helpful to future earnings in 5th year. Finally, the results of the hedge-portfolio test also support market inefficiency and overpricing three components of current earnings.