Innovation, Managerial Myopia, and Financial Reporting
56 Pages Posted: 16 Dec 2012 Last revised: 7 Apr 2015
Date Written: April 7, 2015
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: Suggested Citation