Investors underestimate the benefits from corporate research and development activity (R&D) in general, and from patent-related activity in particular. As a result, stock prices underreact to patent-based information, and portfolios formed based on such information earn significant risk-adjusted returns. Yet it is far from obvious whether mandated disclosure of patent-related information provide shareholders with information that alleviates the documented underreaction. On the one hand, forced disclosure of intangibles might be undesirable because it requires managers to divulge information they prefer to keep secret for the shareholders benefit. Furthermore disclosure requirements can increase the under-investment problem for hard-to-value intangibles. On the other hand, managers might have incentives to withhold good news from investors. This researcher's empirical tests explore this tension. He is using SAS and STATA to do the statistical analysis. The data will be from different public sources. Accounting data comes from Compustat, the stock price data from CRSP, the analyst forecast data from IBES, the 10K filing data from the WRDS SEC Analytics Suite, the management discussion section of 10K from CompactD, and the patent data from NBER. The Fama French factors from Kenneth French’s website is also used. Because of such a large amount of data, the computational resources of MSI are needed.
A bibliography of this group’s publications acknowledging MSI is attached.