1. How Do Investors React to R&D Reductions
Authors: Konan Chan, Yueh-Hsaing Lin, and Yanzi Wang
Discussant: Chung-Ying Yeh,
Department of Finance, NCHU

2. Strong Points of this Paper
outstanding introduction, very good motivation
clear exposition, clear language
near-to-perfect results
address main potential concerns in robustness tests
make the story quite convincing even for me

3. Comment 1: Is overinvestment sufficient to explain the positive long-run abnormal returns?
I can agree that reducing R&D can the cost of capital (the discount rate) for the overinvested firms. This can bring up stock prices and generate positive returns.
But does this story sufficiently explain the 5-year long positive abnormal returns? (I think NO!)

4. Comment 1: Is overinvestment sufficient to explain the positive long-run abnormal returns?
You need another mechanism: investors UNDERREACT the decreased cost of capital due to R&D reductions.
You subtly or strategically mention it but you don’t test it. I think that it is a critical point for you results.
Underreaction or Slow information transition (Hong and Stein (1999)) are two possible ways to explain the prolonged abnormal returns. You need to address this.

5. Comment 2: The Definition of Event Days

6. How to deal with firms with CONSECUTIVE R&D reductions?
Another extreme scenario: R&D expenses has a seasonal feature, frequent ups and downs.
This issue can not be ignorable because your R&D reductions need to make sense, in particular finance sense.
Independence assumption, or using beginning/ending dates

7. Comment 3: how to isolate industrial effect

8. How to proper isolate industrial effect is very important
How to proper isolate industrial effect is very important. Your sample is not spread evenly.
Managerial Myopic Hypothesis is useless. Positive long-run abnormal returns totally rule out this hypothesis. My suggestion: can you find any behavioral stories (maybe stories about momentum) to explain your findings.