What is it about?
Cautious managers often fail to report corporate R&D. We show how this creates difficulties for investors comparing innovation across firms. Our research indicates that studies on corporate innovation often arrive at erroneous conclusions because of this unreported R&D.
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Why is it important?
Our analysis shows that managerial traits influence corporate compliance decisions. Intuitively, a failure to provide a mandatory disclosure creates label confusion among investors. Importantly, our evidence indicates that mandatory disclosure rules influence real investment activity.
Perspectives
Firms routinely fail to report their true R&D activities. Mandatory disclosure rules center on overcoming this information problem. Yet, the role of mandatory financial disclosures in overcoming corporate silence systematically varies with managerial confidence.
David Reeb
National University of Singapore
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This page is a summary of: CEO Confidence and Unreported R&D, Management Science, August 2017, INFORMS,
DOI: 10.1287/mnsc.2017.2809.
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