Information Asymmetry, R&amp;D, and Insider Gains

Aboody, David; Lev, Baruch

doi:10.1111/0022-1082.00305

Cited by 1,288 publications

(774 citation statements)

References 31 publications

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“…To begin with, given that a firm's stage of development is indicative of the maturity of its R&D resources and their commercial potential (e.g., Aboody and Lev, 2000;Ahuja, 2000;Rothaermel and Deeds, 2004), firms that are in early stages of product development present greater information asymmetries and risk of adverse selection to potential partners. We therefore investigate whether sharing a common VC investor will have a more pronounced effect when partner firms are yet in early stages of product development.…”

Section: Background Theorymentioning

confidence: 99%

“…During the early development stages of their technologies, entrepreneurial firms are usually short of track records that would provide information on their activities and technological resources (e.g, Amit et al, 1990;Shane and Stuart, 2002). In particular, when firms' technologies are in the initial stages of development, verifiable information about the underlying capabilities of firms is very limited, and information about their R&D projects and product development initiatives can be costly for outsiders to obtain (e.g., Aboody and Lev, 2000;Ahuja, 2000). By contrast, when firms achieve progress in product development activities, information is produced about their R&D activities and helps prospective partners assess firms' intangible assets and resources.…”

Section: Research Hypothesesmentioning

confidence: 99%

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Partner Selection in R&D Collaborations: Effects of Affiliations with Venture Capitalists

Reuer¹,

Devarakonda²

2017

Organization Science

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This paper extends information economics to the literature on alliance partner selection by demonstrating how VCs can facilitate R&D collaborations. We investigate a new role for VCsinformation intermediation -that can enable R&D partnerships between entrepreneurial ventures that lack knowledge of each other's technological resources. In contrast to the more diffuse signaling benefits entrepreneurial ventures obtain by affiliating with prominent VCs, backing by a common VC can privately and directly reduce information asymmetries between entrepreneurial ventures. We demonstrate that the effects of VC information intermediation are more pronounced when prospective collaborators are at the earliest stages of product development and when they find it difficult to judge each other's technological resources, such as when they do not have previous partnerships together, do not draw upon each other's knowledge bases, and have dissimilar technology portfolios. We empirically investigate the multiple different ways in which VCs potentially facilitate R&D partner selection and identify specific conditions under which VCs' information intermediation function contributes to segmentation in markets for R&D alliances.

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Section: Background Theorymentioning

confidence: 99%

Section: Research Hypothesesmentioning

confidence: 99%

Partner Selection in R&D Collaborations: Effects of Affiliations with Venture Capitalists

Reuer¹,

Devarakonda²

2017

Organization Science

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“…Studies into the sources of information asymmetry suggest that the accrual of information, R&D and analyst following have been strongly associated with the occurrence of opportunistic trading activities by insiders [16,34,35,50]. Despite these findings, there are fewer studies investigating the role of corporate policies towards insider trading activities in the capital markets [6,37].…”

Section: Why Corporate Governance?mentioning

confidence: 99%

Do Board Characteristics Matter to Insider Timing and Profitability in the US Market?

Kiwia¹

2017

JFE

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In this paper I analyze the relationship between insider trading and corporate governance characteristics.Despite, the widely held view that insider trading significantly affects stock prices; little is known about what causes such market inefficiency and whether firm characteristics matters. This paper focuses on the impact of board structure towards insider trading and stock price efficiency. Using an event study methodology, this paper analyzes the influence of different board characteristics on insider profits as measured by share price abnormal returns. It also uses purchase ratio as a proxy for insider trading activities. Findings suggest that higher board independence, small board size and high debt levels have a significant influence towards reducing insider profits. The trading activities of insiders appear to have no significant relationship to the corporate governance characteristics of the firm. The overall results suggest that good governance reduces insider abnormal profits and increase stock price efficiency. With regards to insider trading activities we found little evidence suggesting corporate governance impact insider trading associated with future cash-flows. The study uses a sample of 250 firms from S&P 500 Index from 2000 to 2005.

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“…In addition, accounting practices do not adjust the long-term benefits of R&D activities into firms' financial statements. These characteristics of innovative activities mean that R&D firms have a higher level of information asymmetry than no R&D and low R&D firms (Aboody & Lev, 2000).…”

Section: Market Reactions To Randd Stocksmentioning

confidence: 99%

“…The complex content of R&D projects makes it hard for investors to predict their value, and this worsens the extent of information asymmetry between insiders and investors (Aboody & Lev, 2000). Moreover, Chan, Lakonishok, & Sougiannis (2001) point out that underpricing may arise because accounting rules cannot fully reflect the value of R&D projects.…”

Section: Introductionmentioning

confidence: 99%

R&D Investment and Market Reactions in Non-crisis and Crisis Periods: Evidence from Taiwan

Chou¹,

Phan²

2016

International Journal of Financial Research

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This study examines market reactions to firms with different level of R&D expenditure. In particular, we investigate whether R&D investment in an uncertain environment, such as during the global financial crisis of 2008, will aggravate the level of information asymmetry and increase the likelihood of undervaluation on R&D stocks. We use a sample of Taiwanese firms and classify the sample into four portfolios: no R&D, low R&D, middle R&D and high R&D firms, and estimate abnormal returns using the Fama and French three factor and Carhart four factor models. We find that the no R&D portfolio has the highest positive and significant abnormal returns in the non-crisis period (2000)(2001)(2002)(2003)(2004)(2005)(2006)(2007), while the high R&D portfolio has the highest abnormal return in crisis period (2008)(2009)(2010)(2011). Our multivariate analysis provides supporting evidence that high R&D firms have a greater extent of information asymmetry than no R&D firms during the crisis period, while no R&D firms bear a high risk of low growth potential in non-crisis period. Similar results are obtained either by equal-weighted or value-weighted portfolio returns. Recent studies propose that investors may misprice high-tech firms. Our results provide international evidence that investors react differently to no R&D and R&D intensive firms, and R&D investment in crisis period will aggravate information asymmetry and the extent to which investors underestimate the value of R&D stocks.

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Information Asymmetry, R&D, and Insider Gains

Cited by 1,288 publications

References 31 publications

Partner Selection in R&D Collaborations: Effects of Affiliations with Venture Capitalists

Partner Selection in R&D Collaborations: Effects of Affiliations with Venture Capitalists

Do Board Characteristics Matter to Insider Timing and Profitability in the US Market?

R&D Investment and Market Reactions in Non-crisis and Crisis Periods: Evidence from Taiwan

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