THE RELATIONSHIP BETWEEN R&D EXPENSES AND THE ABNORMAL RETURN IN BRAZILIAN FIRMS

Abstract

ABSTRACT Purpose: This study aims to analyze the relationship between the abnormal return and R&D expenses in Brazilian public firms. Originality/value: The determinants of firms' abnormal return provide information relevant to investors' decision-making. In this context, we verified whether the innovation, measured by R&D expenses, could be a key factor for the abnormal returns in Brazilian firms. Design/methodology/approach: We analyzed Brazilian public firms, from 2009 to 2016, by panel data regressions, in a sample composed by 1,597 firm-year observations. We collected information about R&D expenses in the footnotes. When a firm only mentioned about R&D expenses but did not disclose spent value in the Income Statement, we consider that the firm did not invest in the period and we attribute zero as a value. We highlighted that few firms mentioned R&D expenses in their footnotes and/or declared that they invested in R&D, only 44 firms in all sample, pointing the importance of better disclosure practices of these investments. Findings: The results demonstrate a negative and statistically significant relationship between innovation and the abnormal return. That is, current R&D expenses lead to a lower current abnormal return. It could be linked with the fact that R&D expenses tend to produce returns just in longer periods, demanding more time to recover these investments, due to their complex characteristics related to accounting measurement of R&D expenses. Consequently, an abnormal return could be perceived only in subsequent periods.