Innovation, Managerial Myopia, and Financial Reporting

56 Pages Posted: 16 Dec 2012 Last revised: 7 Apr 2015

See all articles by Xin (Simba) Chang

Xin (Simba) Chang

Nanyang Business School

Gilles Hilary

Georgetown University - Department of Accounting and Business Law

Jun-Koo Kang

Nanyang Technological University (NTU) - Nanyang Business School

Wenrui Zhang

The Chinese University of Hong Kong (CUHK) - Department of Finance

Date Written: April 7, 2015

Abstract

We examine the impact of financial reporting on corporate innovation. We find that firms that exhibit more conservative financial reporting generate fewer patents. Their patents also result in fewer citations and lower economic benefits. These effects of conservative financial reporting on innovation are more pronounced when firms have greater need for innovation, when the product development cycle is longer, or when managers are more myopic. Overall, our findings suggest that conservative financial reporting curbs corporate innovation by exacerbating the effects of managerial myopia. Our results are robust to a host of controls for endogeneity.

Keywords: Accounting conservatism, Innovation, Managerial myopia

JEL Classification: M41, O31

Suggested Citation

Chang, Xin and Hilary, Gilles and Kang, Jun-Koo and Zhang, Wenrui, Innovation, Managerial Myopia, and Financial Reporting (April 7, 2015). INSEAD Working Paper No. 2013/35/AC. Available at SSRN: https://ssrn.com/abstract=2189938 or http://dx.doi.org/10.2139/ssrn.2189938

Xin Chang

Nanyang Business School ( email )

S3-B1B-76 Nanyang Avenue
Singapore, 639798
Singapore

HOME PAGE: http://www.ntu.edu.sg/home/changxin

Gilles Hilary (Contact Author)

Georgetown University - Department of Accounting and Business Law ( email )

McDonough School of Business
Washington, DC 20057
United States

Jun-Koo Kang

Nanyang Technological University (NTU) - Nanyang Business School ( email )

Nanyang Avenue, Block S3-01b-54
Singapore, 639798
Singapore
(+65) 6790-5662 (Phone)
(+65) 6791-3697 (Fax)

HOME PAGE: http://www.nbs.ntu.edu.sg/nbs_corporate/divisions/bnf/index.asp

Wenrui Zhang

The Chinese University of Hong Kong (CUHK) - Department of Finance ( email )

Shatin, N.T.
Hong Kong

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