SEO Valuation and Insider Manipulation of R&D

dc.contributor.authorWalker, Rosemary
dc.contributor.authorKwak, Sungkyu
dc.contributor.authorHull, Robert M.en_US
dc.dateSeptember 2015en_US
dc.description.abstractWe examine a sample of 674 SEOs from 1999-2010 where reduced R&D spending is significantly associated with the lowering of insider ownership proportions. With this association established, we derive an R&D manipulation variable measuring underinvestment in R&D. We add to the SEO - R&D literature by examining the relation between R&D underinvestment and common stock valuation around SEOs. In contrast to the IPO research, we do not find that underinvestment in R&D leads to greater SEO stock valuations during the offer price setting process. Like the IPO research, we find that underinvestment in R&D leads to lower stock valuations for short-run post-offering tests. In contrast to the long-run IPO results, we find a significant association between R&D manipulation and stock valuation for long-run post-offering tests where underinvestment in R&D is associated with lower stock valuations. We also find the five percent owner group for SEOs is important in explaining R&D manipulation and discover that underpricing for SEOs is not related to R&D manipulation. These latter two findings are different from IPOs. In conclusion, SEOs can be quite different from IPOs when examining the association between the insider manipulation of R&D and stock valuation.en_US
dc.description.sponsorshipKaw Valley Banken_US
dc.identifier.otherSchool of Business Working Paper Series; No. 175 (Rev'd)en_US
dc.publisherWashburn University. School of Businessen_US
dc.subjectStock valuationen_US
dc.subjectResearch and developmenten_US
dc.subjectSeasoned equity offeringen_US
dc.titleSEO Valuation and Insider Manipulation of R&Den_US
dc.typeWorking paperen_US
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