Innovative Originality, Profitability, and Stock Returns
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.
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Copy CitationDavid Hirshleifer, Po-Hsuan Hsu, and Dongmei Li, "Innovative Originality, Profitability, and Stock Returns," NBER Working Paper 23432 (2017), https://doi.org/10.3386/w23432.Download Citation
Non-Technical Summaries
- Author(s): David HirshleiferFinancial analysts and stock market investors alike are subject to behavioral biases. Objective analyst forecasts can potentially help...
Published Versions
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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