Narrative Disclosure and Earnings Performance: Evidence from R&D Disclosures

• 成果类型: Article
• 署名作者: Merkley, Kenneth J.
• 署名单位: Cornell University
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/accr-50649
• 发表日期: 2014
• 页码: 725-757
• 关键词: information-content; CORPORATE DISCLOSURE; ANALYST COVERAGE; valuation; CONSEQUENCES; COMPETITION; asymmetry; MARKETS

摘要

This paper examines how earnings performance relates to firms' narrative R&D disclosure decisions. The unique nature of R&D investments and financial statements' limited ability to communicate the value of such investments highlight the role of narrative disclosure as a supplement to the financial statements. I predict and find that current earnings performance (adjusted for R&D expense) is negatively related to the quantity of narrative R&D disclosure. Conducting a content analysis of the detail, tone, and readability of narrative R&D disclosures, I find that managers adjust R&D disclosures based on earnings performance to provide relevant information rather than to obfuscate performance. Finally, I provide evidence that market participants find narrative R&D disclosure informative because it significantly affects sell-side analyst behavior, disclosure information content, and information asymmetry.