Date of Award

Summer 1996

Document Type


Degree Name

Doctor of Philosophy (PhD)


Business Administration-Finance

Committee Director

John Doukas

Committee Member

Mohammad Najand

Committee Member

Edward Markowski


This study examines the intra-industry effect of announcements of technological advancement on the market valuation of both the announcing firm and the announcing firm's relative industry competitors. This paper consists of two parts. Essay I discusses firm specific and intra-industry valuation effects of a firm's Research and Development (R&D) expenditures, while Essay II concentrates on the firm-specific and intra-industry valuation effects of a firm's patent-grant announcement. Specifically, this study examines the validity of the competitive and free-rider hypotheses to explain the market response to announcements of R&D spending and the granting of patents.

While the evidence shows that the market reaction to the firm's announcement of R&D and patent grants is insignificant, the effect of the R&D and patent-grant announcement on the announcing firm's industry is significantly positive. These results imply that there is a significant technological spillover effect at the expense of the announcing firm. In addition, the results suggest that the nature of competitor interaction has a significant influence on the announcing firm and its overall industry. In order to examine this industry interaction effect, the industry competitors of the announcing firm are categorized as either close or distant rivals. This distinction is based upon firm competition at the R&D level and the firm's relative technological strength as evidenced by their patent grants. In the case of the R&D announcement, the close competitors of the announcing firm appear to be the driving force within the industry as the market reaction is positive and significant. It may suggest that close competitors have the proper R&D infrastructure to take advantage of the announcing firm's R&D announcement. The market evaluates their ability to compete in R&D and rewards them. In the case of patent-grant announcements, it is the distant rivals of the announcing firm which incur significant positive market abnormal returns. The results seem to suggest that while the distant rivals may not have the comparative technological strength of the announcer or close competitors, they may posses some intangible asset (i.e., management skill or a 'generic product' strategy) which enhances their ability to free-ride.

Second, for both R&D and patent-grant announcements, not all the announcing firms experience negative abnormal returns. However, the technological spillover differences seem to depend on whether the announcing firm incurs positive or negative abnormal market returns. Specifically, the spillover appears to be strongly associated with those announcing firms who earn negative abnormal returns as the market is aware that R&D intensity and patent technological strength varies across firms. Further, in an attempt to determine whether or not the spillover wipes out all benefits to the announcing firm, post-announcement performance tests are used. The results indicate that both R&D and patent-grant anouncing firms tend to improve their profitability.

Overall, the results suggest that the market valuation of R&D and patent-grant announcing firms depends on the interaction of the announcer's close and distant industry competitors. In addition, it is the varying degree of successful R&D competition among firms and the technological strength of a firm's granted patents which ultimately lead to advancement within the industry.