![]() ![]() We propose that the past behavior of firm stock returns and volatility may create investor expectations of short-term financial performance, which drives managers to modify either R&D or marketing budgets or both. However, in response to investor expectations for short-term stock returns, managers may modify these budgets myopically to avoid unexpected short-term earnings shortfalls, at the cost of long-term profitability. The budgets for research and development (R&D) and marketing should be determined by managers to attain product market advantages.
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