Disclosure of innovation activities by high-technology firms

Abstract

This study investigates management incentive to disclose non-GAAP indicators concerning innovation in high-technology industries and the usefulness of the disclosure. As predicted, we find that firms increase disclosures of innovation when current earnings are less informative, or when future earnings are more uncertain. This finding is consistent with firms increasing disclosure in response to investor information demands when accounting data are less useful in assessing firm value. We also find that disclosures of innovation contain price-sensitive news. In addition, we find that disclosures of innovation are positively associated with the firm's future sales growth, profitability, and stock returns, after controlling for current performance and other factors known to influence future performance. This evidence is consistent with management disclosure conveying valuerelevant information that is not reflected in current performance, but is predictive of future performance. © City University of Hong Kong. JEL Classification: M41 and O31

DRIVERS OF STRATEGY AND R&D DISCLOSURES

“…Moreover, voluntary disclosures may contribute to more accurate value estimation of young companies [Amir, Lev 1996] than financial figures concerning past earnings [Kim, Ritter 1999]. Gu and Li [2003] validated a hypothesis that younger companies disclose more about their innovation activities. They evidenced statistically relevant negative association between the company age and total disclosure index of innovative activities as well as between the company age and partial indices, including disclosures on strategy, progress, commercialization and completion of innovations.…”

“…The problem of R&D disclosure has been remarked and highlighted in many empirical research studies carried out by: Entwistle [1999], Gu andLi [2003] Jones [2007], Merkley [2014], La Rosa and Liberatore [2014] and Nekhili et al [2016], whereas factors affecting both strategy and R&D disclosures were examined by Napoli [2013] on a sample of R&D intensive companies listed on the Milan Stock Exchange. Napoli [2013] validated three hypotheses: (1) firms with higher R&D intensity make more R&D disclosure; (2) firms with higher R&D intensity make more disclosure of their strategy; (3) younger firms make more disclosure about their strategy.…”

“…The company age is a commonly used variable in the empirical research studies on determinants of voluntary disclosure [Gu, Li 2003;Bukh et al 2005;White et al 2007;Cordazzo, Vergauwen 2012;Napoli 2013]. Lang [1991] remarked that young companies are overwhelmed by uncertainty about future earnings.…”

Disclosure of R&D activities

“…According to Percy (2000), companies with a high level of R&D persistently disclose asymmetrical information and present significant monitoring costs of the disclosure between managers and investors. According to Gelb (2002) and Gu and Li (2003), the companies with a significant level of R&D and advertising costs disclose more voluntary and flexible information about their R&D projects in the annual reports. This paper therefore analyzes companies from the ICT and Pharmaceutical Industry listed on the Stock Exchange of the two countries.…”

Relevância informacional atribuída ao disclosure de gastos com P&D no mercado de capitais brasileiro

“…O segundo sinal é o esforço inovador (H2), demonstrando quão comprometida com a inovação é a empresa. Espera-se, neste estudo, que os gastos com P&D sinalizem a perspectiva de obtenção de vantagens competitivas futuras para os investidores, incrementando assim o valor das firmas, como sugere uma parcela da literatura mencionada (AZEVEDO; GUTIERREZ, 2009;GU;LI, 2003;LEE;SHIM, 1995), por meio do impacto positivo no crescimento ou no desempenho das empresas. Essa perspectiva é contrária aos resultados obtidos por Alves et al (2001), Santos et al (2014)…”