Scandinavian Working Papers in Economics
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CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology KTH/CESIS Working Paper Series in Economics and Institutions of Innovation

No 397:
Research Intensity and Financial Analysts Earnings Forecast: Signaling Effects of Patents

Ali Mohammadi (), Nada O. Basir () and Mehdi Beyhaghi ()

Abstract: In this paper, we study how R&D investment affect financial analystís earnings forecasts and how intellectual capital endowments moderate this effect. We argue that high information asymmetry and uncertainty associated with R&D investment increase a financial analystsí earnings forecast error. Patents can remedy this relationship by signaling the ability of a firm in transforming research investments into new and valuable knowledge. Using a panel of 2,253 publicly listed U.S firms, we find that higher R & D intensity is positively correlated with financial analystsí earnings forecast error. The endowment of intellectual capital (i.e. patents) moderates this relationship negatively. However we do not find any moderating effect for the value of patents measured as forward citations.

Keywords: R&D intensity; Analyst forecasts; Patent; information asymmetry; uncertainty; Capital market; (follow links to similar papers)

JEL-Codes: G24; O32; O34; (follow links to similar papers)

26 pages, February 3, 2015

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