GGeeoorrggiiaa SSttaattee UUnniivveerrssiittyy SScchhoollaarrWWoorrkkss @@ GGeeoorrggiiaa SSttaattee UUnniivveerrssiittyy Business Administration Dissertations Programs in Business Administration Fall 12-10-2016 WWhhaatt RRoollee DDoo TTeecchh CCoommppaanniieess'' RR&&DD EExxppeennddiittuurreess PPllaayy iinn AAnnaallyyssttss SSaalleess aanndd EEaarrnniinnggss FFoorreeccaassttss?? Vijaykumar Gandapodi Georgia State University Follow this and additional works at: https://scholarworks.gsu.edu/bus_admin_diss RReeccoommmmeennddeedd CCiittaattiioonn Gandapodi, Vijaykumar, "What Role Do Tech Companies' R&D Expenditures Play in Analysts Sales and Earnings Forecasts?." Dissertation, Georgia State University, 2016. doi: https://doi.org/10.57709/8872731 This Dissertation is brought to you for free and open access by the Programs in Business Administration at ScholarWorks @ Georgia State University. It has been accepted for inclusion in Business Administration Dissertations by an authorized administrator of ScholarWorks @ Georgia State University. For more information, please contact [email protected]. PERMISSION TO BORROW In presenting this dissertation as a partial fulfillment of the requirements for an advanced degree from Georgia State University, I agree that the Library of the University shall make it available for inspection and circulation in accordance with its regulations governing materials of this type. I agree that permission to quote from, copy from, or publish this dissertation may be granted by the author or, in her absence, the professor under whose direction it was written or, in his absence, by the Dean of the Robinson College of Business. Such quoting, copying, or publishing must be solely for scholarly purposes and must not involve potential financial gain. It is understood that any copying from or publication of this dissertation that involves potential gain will not be allowed without written permission of the author. Vijaykumar Gandapodi NOTICE TO BORROWERS All dissertations deposited in the Georgia State University Library must be used only in accordance with the stipulations prescribed by the author in the preceding statement. The author of this dissertation is: Vijaykumar Gandapodi 7910 Royal Melbourne Way Duluth, GA 30097 The director of this dissertation is: Conrad Ciccotello J. Mack Robinson College of Business Georgia State University
 Atlanta, GA 30302-4015 What Role Do Tech Companies’ R&D Expenditures Play in Analysts’ Sales and Earnings Forecasts? By Vijaykumar Gandapodi A Dissertation Submitted in Partial Fulfillment of the Requirements for the Degree Of Executive Doctorate in Business In the Robinson College of Business Of Georgia State University GEORGIA STATE UNIVERSITY J. MACK ROBINSON COLLEGE OF BUSINESS 2016 Copyright by Vijaykumar Gandapodi 2016 ACCEPTANCE This dissertation was prepared under the direction of Sergio Quinones-Romandia Dissertation Committee. It has been approved and accepted by all members of that committee, and it has been accepted in partial fulfillment of the requirements for the degree of Executive Doctorate in Business in the J. Mack Robinson College of Business of Georgia State University. Richard Phillips, Dean DISSERTATION COMMITTEE Dr. Conrad Ciccotello (Chair) Dr. Craig Ruff Dr. Felix Rioja iv TABLE OF CONTENTS LIST OF TABLES ........................................................................................................... vi LIST OF FIGURES .......................................................................................................... x ABSTRACT ...................................................................................................................... xi I CHAPTER 1: INTRODUCTION ............................................................................ 1 II CHAPTER 2: LITERATURE SYNTHESIS........................................................... 4 III CHAPTER 3: THEORETICAL BACKGROUND AND HYPOTHESES ......... 11 III.1 Research and Development Expense (R&D) ............................................... 13 III.2 Current Year EPS Estimate Revision .......................................................... 14 III.3 Next Year EPS Estimate Revision ................................................................ 16 III.4 Current Year Sales Estimate Revision ......................................................... 17 III.5 Next Year Sales Estimate Revision ............................................................... 18 IV CHAPTER 4: DATA COLLECTION AND ANALYSIS .................................... 19 IV.1 Distribution of Samples over Time, by Size and by Industry .................... 24 IV.1.1 Time .............................................................................................................24 IV.1.2 Size ...............................................................................................................25 IV.1.3 Industry ........................................................................................................26 IV.1.3.1 Software and Services group .............................................................26 IV.1.3.2 Technology Hardware and Equipment ..............................................26 IV.1.3.3 Semiconductor....................................................................................27 IV.2 Data analysis ................................................................................................... 28 V CHAPTER 5: RESULTS ........................................................................................ 31 V.1 Descriptive Statistics ...................................................................................... 31 V.2 Correlation Matrix of Independent Variables ............................................ 34 v V.3 Hypothesis 1: A change in R&D expenditure impacts analysts’ sales estimate forecasts for the current year......................................................... 38 V.4 Hypothesis 2: A change in R&D expenditure impacts analysts’ sales estimate forecasts for the next year. ............................................................. 39 V.5 Hypothesis 3: A change in R&D expenditure impacts analysts’ EPS estimate forecasts for the current year......................................................... 51 V.6 Hypothesis 4: A change in R&D expenditure impacts analysts’ EPS estimate forecasts for the following year. ..................................................... 51 VI CHAPTER 6: DISCUSSION .................................................................................. 73 VI.1 Correlation analysis ....................................................................................... 79 VI.2 Regression Analysis ........................................................................................ 87 VI.3 Summary of Hypothesis Results ................................................................. 100 VI.4 Contribution to Practice .............................................................................. 101 VI.5 Contribution to Theory ............................................................................... 102 REFERENCES .............................................................................................................. 104 VITA............................................................................................................................... 109 vi LIST OF TABLES Table 1 R&D and Company-Related Information ............................................................ 21 Table 2 Analyst Data from IBES ...................................................................................... 22 Table 3 Data Calculated and Consolidated in Excel Spread Sheet ................................... 23 Table 4 Year Wise Number of Firms ................................................................................ 25 Table 5 Industry Grouping ................................................................................................ 26 Table 6 Number of Records Industry Wide ...................................................................... 27 Table 7 Sub Industries and Company Examples. ............................................................. 28 Table 8 Descriptive Statistics............................................................................................ 32 Table 9 Correlation Matrix for All Independent Variables .............................................. 34 Table 10 Correlation Matrix for Large Size Firms ........................................................... 35 Table 11 Correlation Matrix for Medium Size Firms ....................................................... 36 Table 12 Correlation Matrix for Small Size Firms ........................................................... 37 Table 13 Correlation R&D and Analyst Sales Estimate ................................................... 38 Table 14 Regression of R&D, Revenue, … with Analyst Sales Estimate ........................ 39 Table 15 Correlation of R&D with Analyst Sales – Market Cap Segmentation .............. 42 Table 16 Regression of R&D, Revenue, … with Analyst Sales Estimate (Large Size companies) ................................................................................................................ 43 Table 17 Regression of R&D, Revenue, … with Analyst Sales Estimate (Medium Size companies) ................................................................................................................ 44 Table 18 Regression of R&D, Revenue, … with Analyst Sales Estimate (Small size companies) ................................................................................................................ 45 Table 19 Correlation of R&D with Analyst Sales – Industry Group Segmentation ......... 47 vii Table 20 Regression of R&D…… with Analyst Sales Estimate (Software & Services) . 48 Table 21 Regression of R&D…… with Analyst Sales Estimate (Technology Hardware) ................................................................................................................................... 49 Table 22 Regression of R&D……with Analyst Sales Estimate (Semiconductor) ........... 50 Table 23 Correlation R&D with Analyst EPS Estimate ................................................... 51 Table 24 Regression of R&D, Revenue, … with Analyst EPS Estimate ......................... 52 Table 25 Regression of R&D, … with Analyst EPS Estimate (Without Revenue) ......... 53 Table 26 Correlation of R&D with Analyst EPS – Market Cap Segmentation ................ 54 Table 27 Regression of R&D, Revenue, … with Analyst EPS Estimate (Large Size companies) ................................................................................................................ 55 Table 28 Regression of R&D, … with Analyst EPS Estimate, Large Size companies (No Revenue) ................................................................................................................... 56 Table 29 Regression of R&D, Revenue, … with Analyst EPS Estimate (Medium Size companies) ................................................................................................................ 57 Table 30 Regression of R&D... with Analyst Sales Estimate, (Medium Size companies)(No Revenue) .......................................................................................... 58 Table 31 Regression of R&D, Revenue, … with Analyst EPS Estimate ( Small Size companies) ................................................................................................................ 59 Table 32 Regression of R&D… with Analyst EPS Estimate (Small Size companies) (No Revenue) ................................................................................................................... 60 Table 33 Correlation of R&D with Analyst EPS – Industry Group Segmentation .......... 61 Table 34 Regression of R&D……with Analyst EPS Estimate (Software and Services companies) ................................................................................................................ 62