Abstract

This study investigates the determinants and market consequences of firms’ disclosure for forward-looking R&D expenditures. Using the annual reports of listed and OTC companies in Taiwan, the results show that firms with lower proprietary information costs, better earnings performance, lower earnings volatility, and smaller divergence between voting rights and cash flow rights tend to voluntarily disclose the information of forward-looking R&D expenditures, and their disclosures tend to be more specific (precise). Moreover, the disclosure of forward-looking R&D expenditures is associated with higher future earnings response coefficient (FERC). We also find significant negative stock returns for firms whose actual R&D expenses are different from (especially lower than) the disclosed expected R&D expenses, reflecting investors’ negative reaction to forward-looking information that is not credible.  

Keywords

voluntary disclosurefuture earnings response coefficientR&D expenditure