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Critics often decry an earnings-focused short-term orientation of management that eschews spending on risky, long term projects such as innovation in order to boost a firm's stock price. The critics' assume that stock markets respond to announcements of earnings that report immediate earnings and not of innovation that have a long-term payoff. Contrary to this position, the authors argue that the market's true appreciation of innovation can be estimated by assessing the total market returns to the entire innovation project The authors demonstrate this approach via the Fama-French 3 Factor Model (including Carhart's Momentum Factor) on 5481 announcements from 69 firms in 5 markets and 19 technologies, during the period 1977-2006.
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