It is well-known that markets react to financial information in the short run according to the efficiency market hypothesis. However, information is not limited to financial disclosure. In the current growth paradigm driven by technological progress, the innovation related information assume a central role in determining stock market fluctuations and overall firms¿ performances. The knowledge about the mechanism of how innovation related information affect stock market short term return is still rare. Our project aims at contributing to the ongoing debate about information and value of firm by exploring how innovation related information affect stock market returns of top 100 non-financial European firms in the short run during the period 2002-2016. By using Event study analysis, we jointly and simultaneously test the significance of different kind of information related to innovation (technical information about patenting activities and management voluntary delivered information about technology) on stock market returns. The present research proposal challenges some of the limits of the extant literature by allowing for a deeper analysis of the content and quality of information and their influence on firms `stakeholders. Our analysis may have several implications for both firms (managerial implications) and policy makers (regulatory implications). At a firm level, the analysis could suggest to management which behaviour about innovation related information could be beneficial to company¿s strategy. At a policy level, the analysis may help the regulatory bodies to identify the relevant channel of information to be monitored in order to smooth abnormal pricing fluctuations.
Market efficiency hypothesis has been challenged from various perspectives. In particular, it has been demonstrated that markets abnormally react to selected information, mostly financial information. In the current growth paradigm driven by technological progress, the innovation related information have been also tested as a factor affecting stock market fluctuations. The extant empirical literature on innovation and stock market returns looked at the innovation related information using as sources: questionnaires from the management (Moorman et al. 2012), pre-announcements and announcements of new product on press release (Korkeamaki and Takalo 2012), accounting data on R&D (Hirshleifer et al. 2013), patent counting (Kozak et al. 2017). These studies have some weaknesses: they select discretionary information; they consider only one source of information, which is in its definition poor as the market is composed by heterogeneous agents. For those reasons, the market could not appreciate some information, which are instead relevant to investors. In our project, we select two different sources of information, which are able to reach in our hypothesis the majority of investors on financial markets. As for the quality of information, we use more reliable data compared to questionnaire that are instead discretionary. Moreover, the selection of two different types of information allows us to analyze the managerial driven and voluntary information and the technical information about patenting activities. In doing such an analysis, we believe, on one side, to reduce the risk of omitting some relevant information and, on the other side, to accurately assess the influence of information on firms `stakeholders . As for the context, generally extant literature on this topic has focused on the North-American markets and on general aggregate indexes. We move forward and, to our best knowledge, we are the first to investigate the Euro 17-zone, looking at individual top 100 non-financial listed firms. By analyzing individual firm responses to events, we are confident to temperate confounding effects generated by firms¿ heterogeneity to the extent that both innovation process and its impact on the market depend on the sectoral specific characteristics. Moreover, our results have also implications for both firms (managerial implications) and policy makers (regulatory implications). At a firm level, the analysis can suggest to management which behaviour about innovation related information could be beneficial to company¿s strategy. At a policy level, the analysis may help the regulatory bodies to identify the relevant channel of information to be monitored in order to smooth abnormal pricing fluctuations
Korkeamaki T.P. and Takalo T. (2012). Valuation of Innovation: The Case of Iphone, Bank of Finland Research Discussion Paper No. 24/2012.