Su Han Chan

Corporate research and development expenditures and share value

Abstract Share-price responses to 95 announcements of increased research and development (R & D) spending are significantly positive on average, even when the announcement occurs in the face of an earnings decline. High-technology firms that announce increases in R & D spending experience positive abnormal returns on average, whereas announcements by low-technology firms are associated with negative abnormal returns. Further, in our cross-sectional analyses we find that higher R & D intensity than the industry average leads to larger stock-price increases only for firms in high-technology industries.

Do strategic alliances create value

Abstract We investigate share price responses to the formation of 345 strategic alliances spanning 1983–1992. The average stock price response is positive, with no evidence of wealth transfers. This is true for horizontal alliances (involving partner firms in industries with the same three-digit SIC codes) as well as non-horizontal alliances. For horizontal alliances, more value accrues when the alliance involves the transfer or pooling of technical knowledge than with nontechnical alliances. Finally, partnering firms tend to display better operating performance than their industry peers over the five-year period surrounding the year in which an alliance is formed.

Initial public offerings of equity securities *1: Anomalous evidence using REITs

Abstract In contrast with numerous studies that find significant underpricing for initial public offerings of industrial firms, we document a statistically significant average return of −2.82% on the first trading day for a sample of 87 initial public offerings of real estate investment trusts during the 1971–1988 period. Our overpricing result is invariant to offer price, issue size, distribution method, offer period, and underwriter reputation. Newly issued REITs, on average, substantially underperform a matching sample of seasoned REITs during the first 190 trading days. Interestingly, buyers of overpriced REITs are predominantly individual or non-13(f) institutional investors.

Stock Market Reaction to Capital Investment Decisions: Evidence from Business Relocations

We investigate the stock market reaction to 447 announcements of business relocation decisions in the 1978–1990 period. We find that the stock market reaction to such decisions is tied to the motive for the relocation and the implied prospects for the firm, with the type of facility being relocated playing an insignificant role. Our finding reconciles several results in the literature concerning the stock market reaction to announcements of capital investment decisions.

Market Microstructure and Real Estate Returns

This paper examines the Real Estate Investment Trust (REIT) market microstruc-ture and its relationship to stock returns. When compared with the general stock market, REIT stocks tend to have a lower level of institutional investor participation and are followed by fewer security analysts. In addition, REIT stocks that have a higher percentage of institutional investors or are followed by more security analysts tend to perform better than other REIT stocks. Our results seem to confirm Jensens (1993, p. 868) proposition that ownership structure (that is, who owns the firms securities) affects the value of the firm. Our findings also have implications about the well documented phenomenon that the financial performance of Commingled Real Estate Funds (CREFs) is better than that of REITs. Copyright American Real Estate and Urban Economics Association.

The Impact of Institutional Investors on the Monday Seasonal

It is well documented that the mean Monday return is significantly negative and is lower than the mean return on other weekdays. Using institutional stock holdings information during the 19811998 period, we document that the Monday seasonal is stronger in stocks with low institutional holdings and that the Monday return is not significantly different from the mean Tuesday to Friday returns for stocks with high institutional holdings during the 19901998 period. Our study provides direct evidence to support the belief that the Monday seasonal may be related to the trading activities of less sophisticated individual investors.

Does A Firm's Entry or Exit Affect Competitors’ Value? Evidence from the REIT Industry: Does A Firm's Entry or Exit Affect Competitors’ Value

We analyze 483 entry and 439 exit events of publicly traded real estate investment trusts (REITs) and find that changes in the number of REITs in the market affect rival REITs’ stock performance. We also partition the sample by the modes of entries and exits as well as by REIT asset type in order to disentangle alternative explanations. Overall, our evidence indicates that the supply effect still matters for stock prices even after considering signaling and price pressure explanations.

MINORITY EQUITY INVESTMENTS AND INTER-FIRM COLLABORATIONS

We examine the benefits for firms participating in collaborations funded via minority equity placements. Selling firms, on average, realize significant increases in share value – strongly correlated with the size of the equity stake, its beta, and the relatedness of the two firms (by industry). Shares of purchasing firms, though, show neutral responses on average (but positive response for R&D intensive alliances). Further, purchasing firms have better financial performance than their industry peers in the years surrounding the announcement (suggesting, unlike joint ventures, that poor performance is not their motivation). Selling firms, however, may be motivated by poor operating performance.