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    R&D manipulation around SEOs and SEO valuations

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    Author
    Hull, Robert M. ; Kwak, Sungkyu ; Walker, Rosemary
    Publisher
    Washburn University. School of Business.
    Sponsor
    KAW Valley Bank
    Date
    June 2015
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    Abstract
    Prior research finds T&D reductions around SEOs are linked to insider ownership decreases. This suggests that insiders underinvest in R&D to inflate earnings so as to increase SEO value. We construct a variable that measures R&D underinvestment, and use this variable within a regression methodology to test its effect on SEO valuation. We discover greater R&D underinvestment is associated with lower valuation even before the announcement of an SEO, frustrating insiders' efforts to increase SEO value by reducing R&D. We also find that lower valuation of SEO firms due to R&D underinvestment continues up to two years after SEOs.
    URI
    https://wuir.washburn.edu/handle/10425/281
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