An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Shao - Chi Chang
National Cheng Kung University Taiwan

Sheng - Syan Chen
National Taiwan University Taiwan

Wen - Chun Lin
National Cheng Kung University Taiwan

Abstract: We examine the role of internal governance in explaining the wealth effect of corporate R&D expenditure increases. We find that the stock market values R&D expenditure increases announced by firms in better internal governance more favorably than those announced by firms in poor internal governance. Our findings hold even after controlling for other potentially influential variables. We also find that when the announcer's growth opportunity is regarded as high, firms that have better internal governance will experience a more favorable announcement effect than those have poor internal governance. On the other hand, the response of poorer internal governance interaction elicits a worse announcement effect for firms when the announcer's growth opportunity is regarded as low. Our evidence supports the notion that the internal governance mechanism in a company is important in assessing the effect of corporate R&D expenditure increases on shareholder value.

Back to Session Listing

AAA Home Page