NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Po-Hsuan Hsu

University of Hong Kong
Faculty of Business and Economics
Room 923, K.K. Leung Building
Pokfulam Road
Hong Kong

E-Mail: paulhsu@hku.hk
Institutional Affiliation: University of Hong Kong

NBER Working Papers and Publications

May 2017Innovative Originality, Profitability, and Stock Returns
with David Hirshleifer, Dongmei Li: w23432
We propose that innovative originality (InnOrig) is a valuable organizational resource, and that owing to limited investor attention and skepticism of complexity, firms with greater InnOrig are undervalued. We find that firms’ InnOrig strongly predicts higher, more persistent, and less volatile profitability; and higher abnormal stock returns—findings that are robust to extensive controls. The return predictive power of InnOrig is stronger for firms with higher valuation uncertainty, lower investor attention, and greater sensitivity of future profitability to InnOrig. This evidence suggests that innovative originality acts as a ‘competitive moat,’ and that the market undervalues InnOrig.

Published: David Hirshleifer & Po-Hsuan Hsu & Dongmei Li, 2018. "Innovative Originality, Profitability, and Stock Returns," The Review of Financial Studies, vol 31(7), pages 2553-2605. citation courtesy of

 
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