Innovation Under Pressure
Firms become more efficient at innovation activities when they face pressure to meet earnings per share (EPS) targets using stock repurchases. Using a regression-discontinuity framework, we find that incentives to engage in “EPS-motivated buybacks” are followed by more citations and higher values fo...
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Veröffentlicht in: | Journal of financial and quantitative analysis 2024-05, p.1-33 |
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Hauptverfasser: | , , , , |
Format: | Artikel |
Sprache: | eng |
Online-Zugang: | Volltext |
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Zusammenfassung: | Firms become more efficient at innovation activities when they face pressure to meet earnings per share (EPS) targets using stock repurchases. Using a regression-discontinuity framework, we find that incentives to engage in “EPS-motivated buybacks” are followed by more citations and higher values for firms’ new patents. We trace these effects to improved allocation of R&D resources and a greater focus on novel innovation. The positive effects are concentrated among ex ante “innovation-efficient” firms that achieve better patenting outcomes after reorganizing (but not cutting) their R&D investments. Our findings illustrate that short-term earnings pressure can act through a free cash flow channel that motivates more efficient spending. |
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ISSN: | 0022-1090 1756-6916 |
DOI: | 10.1017/S0022109024000358 |