innovation, future earnings, and market efficiency（创新、未来收益和市场效率）.pdfVIP

Innovation, Future Earnings, and Market Efficiency FENG GU* This study examines whether patent citation impact, a leading indicator of technology firms’ innovation capabilities, is associated with future earn- ings and whether this association is appropriately reflected in stock prices and analysts’ earnings forecasts of patent-rich companies. The results indicate that change of patent citation impact is positively associated with future earnings, particularly in industries with relatively short time lags between technological advances and profit realization (e.g., computers, electronics, and medical equipment). The strength of this relation also significantly increases with time for up to five years in the future. Market participants, including investors and analysts, however, do not fully in- corporate the implication of enhanced innovation capabilities for future earnings into stock prices and earnings forecasts. This bias is significantly associated with future abnormal stock returns. 1. Introduction A number of recent studies have been devoted to examining the value- relevance of nonfinancial leading indicators, motivated by the increasing impor- tance of these indicators and the economic phenomenon they are associated with— the rise of intangible assets in size and contribution to corporate growth (e.g., AICPA [1994]; FASB [2001]; Upton [2001]; SEC [2001]; Lev [2001]).1 Value- relevance studies generally assume that the documented association between non- *Department of Accounting Law, Jacobs Management Center, State University of New York at Buffalo I am grateful for the helpful comments and suggestions from an anonymous reviewer, Chandra Seethamraju (discus