Stock Price and Systematic Risk Effects of Discontinuation of Corporate R&D Programs

We extend the evidence on whether investors impound efficiently into stock prices new disclosures about corporate Ramp;D programs. We find firms that disclose the discontinuation of some of their Ramp;D programs experience a significant negative announcement-period stock price response which is worse for growth stocks, for small-size firms, and for firms with low operating cash flow. We find no evidence that Ramp;D-discontinuing firms experience an event-induced change in their systematic risk. We find evidence of a one-year-long price reversal; however, it is not robust to controlling for possible risk dimensions for firms with Ramp;D capital that the three-factor model does not capture. Evidently, investors' initial response at disclosures of discontinuation of corporate Ramp;D programs is efficient