Persistence Of Innovations Research Articles

Persistence and economic effects of technological innovations: a dynamic and sequential analysis of Uruguayan manufacturing firms

ABSTRACTThis paper analyzes the long-term relationship between research and development (R&D), innovations and productivity in 400 Uruguayan manufacturing firms during the period 2001–2009 based on a modified version of the structural model of Crepon, Duguet and Mairesse. The paper also analyzes thoroughly the decision of these firms to engage in R&D activities by using a novel categorical dependent variable, which takes three values: non-performance R&D activities, occasional performance or continuous performance over the period. Furthermore, the study investigates whether these manufacturing firms innovate persistently or discontinuously over the period. The results suggest a positive link between the intensity of R&D activities and the generation of product and process innovations. They also indicate that innovation probability is temporally persistent at the firm-level only for product innovations. Finally, the empirical findings reveal that these technological innovations have a positive effect on firm’s productivity.

On the Association between Accrual Quality and Persistence

We offer a theoretical framework to help isolate persistence estimates of fundamental earnings innovations from the effects of accounting measurements. We show that a downward bias results when persistence of earnings innovations is estimated using reported earnings. We show that the greater the accrual estimation errors, the greater this downward bias, thus explaining the empirically observed positive association between accrual quality and estimated earnings persistence. However, when we debias reported earnings persistence as guided by our theoretical framework, we fail to detect any such association. We further show that market returns around earnings announcements are associated with the debiased measure of earnings persistence incremental to reported earnings persistence indicating that the market is able to undo the bias in a manner consistent with our theoretical model. Overall, our results help bring clarity to the literature by pointing out that accrual quality per se does not bear any relation to persistence of earnings innovations; rather, improving accrual quality merely improves the precision in estimating the persistence of these innovations.

Path and past dependence of firm innovation

This study examines persistence of product, process, and organizational innovations for a large sample of German firms over the time span from 2002 to 2008. Descriptive analyses using transition probability matrices show pronounced patterns of persistence for all three types of innovation. State dependence effects vanish for process and organizational innovations once we control for unobserved heterogeneity and endogenize initial conditions (Wooldridge approach). We conclude that product innovation processes exhibit significant path dependence; process and organizational innovations, in contrast, are primarily shaped by time-invariant and unobserved firm characteristics. In addition, we find evidence of intertemporal complementarities among the various innovation types.

Cultured Monkeys

Sixty years ago, the notion that animals could have culture was unthinkable to most behavioral scientists. Today, evidence for innovation, transmission, acquisition, long-term maintenance, and intergroup variation of behavior exists throughout the animal kingdom. What can the longitudinal and comparative study of monkeys handling stones tell us about how culture evolved in humans? Now in its 30th year, the systematic study of stone-handling behavior in multiple troops of Japanese macaques has shown that socially mediated learning is essential to explain the spread, persistence, and transformation of individual behavioral innovations among group members. The integrative research paradigm presented here can be applied to the study of various candidate behavioral traditions in other species.

The persistence of earnings per share

The persistence of innovations to accounting earnings per share, EPS, has important implications for equity valuation, yet it remains a largely neglected subject. This paper employs various empirical tests in order to measure the persistence of shocks to EPS for the S&P 500 index. Within the I(0)/I(1) paradigm the empirical evidence rejects the I(1) specification, supporting instead a trend-stationary representation. When fractional orders of integration are considered, the results indicate that the detrended series is long memory (d > 0) and mean reverting (d < 1). The responses decay slowly to zero, albeit 50 quarters after an initial shock the responses remain significantly different from zero. Likewise, the variance ratio evidence suggests that the effect of a shock persists over time spans characteristic of the business cycle.

Exchange rate puzzles and distorted beliefs

We propose a new explanation for the foreign exchange forward-premium and delayed-overshooting puzzles. We show that both puzzles arise from a systematic distortion in investors' beliefs about the interest rate process. Accordingly, the forward premium is always a biased predictor of future depreciation; the bias can be so severe as to lead to negative coefficients in the ‘Fama’ regression. Delayed overshooting may or may not occur depending upon the persistence of interest rate innovations and the degree of misperception. We document empirically the extent of this distortion using survey data for G-7 countries against the U.S. and find that it is strong enough to account for these irregularities.

The Explanatory Power of Earnings Levels vs. Earnings Changes in the Context of Executive Compensation

Studies in the capital market context indicate that earnings changes and earnings levels considered jointly provide a more comprehensive representation of unexpected earnings than either earnings changes or earnings levels considered alone. Recent studies of executive compensation demonstrate that executive compensation revisions are greater when earnings innovations are permanent, than when innovations are transitory. Together, these literatures imply that both earnings changes and earnings levels explain revisions to CEO compensation. Specifically, formal analysis implies that weights on earnings changes vary directly with the persistence of earnings innovations and that weights on earnings levels vary directly with persistence for low persistence observations and inversely with persistence for high persistence observations. Evidence for compensation to 712 executives of U.S. corporations is consistent with these expectations. Such results suggest that earnings levels, earnings changes, and earnings persistence need to be considered when investigating relations between accounting earnings and executive compensation.

Early News is Good News: The Effects of Market Opening on Market Volatility

In this paper, we examine the characteristics of market opening news and its impact on the estimated coefficients of the conditional volatility models of the GARCH class. We find that the differences between the opening price of one day and the closing price of the day before have different characteristics when considering various stock-market indices on which options are actively traded. The impact of a suitable positive-valued transformation of these differences has the effects of modifying the direct impact of daily innovations on volatility and reducing the estimated overall persistence of such innovations. The overall contribution of the variable is evaluated in an out-of-sample forecasting exercise, where we obtain significant improvements above the simple GARCH model.

A Multivariate GARCH Model of International Transmissions of Stock Returns and Volatility: The Case of the United States and Canada

This study examines the short-run dynamics of returns and volatility for stocks traded on the New York and Toronto stock exchanges. The main finding is that inferences about the magnitude and persistence of return innovations that originate in either market and that transmit to the other market depend importantly on how the cross-market dynamics in volatility are modeled. Moreover, much weaker cross-market dynamics in returns and volatility prevail during later subperiods and especially for Canadian stocks with shares dually listed in New York. Implications for international asset pricing, hedging strategies, and regulatory policy are discussed.

Evidence on the Possible Underweighting of Earnings-Related Information

This study proposes and tests hypotheses related to three issues. (1) Do analysts underestimate the persistence (permanent component) of earnings forecast errors? (2) Do investors use analysts' earnings forecast revisions to reassess the persistence of previous forecast errors? (3) Do investors systematically underestimate the persistence of previous forecast errors signaled by forecast revisions? In their investigations of post-earnings-announcement drift, Rendleman, Jones, and Latan6 [1987], Bernard and Thomas [1989; 1990], and Freeman and Tse [1989] present evidence suggesting that investors systematically underestimate the persistence of earnings forecast errors. I use analysts' expectations (their forecasts) to test the hypothesis that market participants underestimate persistence (issue (1)). Freeman and Tse also show that investors reevaluate the persistence of earnings innovations in the light of subsequent earnings announcements. I investigate whether investors similarly reassess persistence in the light of subsequent analyst earnings forecast revisions (issue (2)). Finally, if investors both underestimate the persistence of forecast errors at earnings announcements and reevaluate persistence when forecasts are revised, then they may underestimate the persistence of earnings forecast errors signaled by forecast revisions. That is, investors may

Output and unemployment dynamics in the United States: 1950–1985

AbstractFor US data over 1950–1985 the stochastic components of GNP growth and the unemployment rate appear to be stationary, and there is substantial feedback between these variables. The unconditional mean rate of unemployment in a joint model thus provides a natural benchmark in discussions of the ‘business cycle’. A bivariate VAR model is used to describe output–unemployment dynamics, to estimate the degree of persistence of output innovations, and to decompose output into trend and cycle. The bivariate results are interpreted using a restricted VAR and it is shown that a closely related cyclical measure can be obtained directly from the Okun's Law equation.

The Recent Evolution of Central Policy Control Mechanisms in Parliamentary Systems

During the last two decades the central policy machinery in major parliamentary systems on the British model has undergone a significant evolution. The changes challenge a long trend toward the growing dominance of the public service in the policy process. They in volve attempts by cabinet, under prime ministerial leadership, to increase the policy re sources of the partisan political leadership to facilitate the adjustment of policy outputs to the values of the government of the day. Innovation is creating pressure for change in the system ideology, focusing on the issue of politicization. The persistence of innovations appears to be related to their ability to respond to the requirements of political leadership.