Earnings Variability and Disclosure of R&D: Evidence from Press Releases

29 Pages Posted: 29 Aug 2013

See all articles by Dan Weiss

Dan Weiss

Tel Aviv University - Coller School of Management

Haim Falk

The Technion, Israel Institute of Technology

Uri Ben Zion

Ben-Gurion University of the Negev

Date Written: September 2013

Abstract

This study explores press releases in the pharmaceutical industry to expand our understanding of how investments in R&D outlays influence uncertainty of future earnings. The findings make two contributions to the literature. First, they provide evidence that equal investments in different R&D ventures are associated with differential variability of future earnings. This result suggests that non‐financial information contained in press releases captures attributes of firm‐specific R&D investments that are not revealed through R&D expenditures reported in financial statements. Second, prior studies have indicated that investments in pharmaceutical R&D are associated with the highest variability of future earnings among all industries. The results, however, suggest that for a large class of low‐risk pharmaceutical R&D investments, the relative variability of future earnings is low and similar to that generated by capital expenditures. The findings hold when we control for endogeneity in voluntary disclosure of press releases.

Keywords: Disclosure, R&D, Press releases, Earnings variability

JEL Classification: G14, M41, O3

Suggested Citation

Weiss, Dan and Falk, Haim and Zion, Uri Ben, Earnings Variability and Disclosure of R&D: Evidence from Press Releases (September 2013). Accounting & Finance, Vol. 53, Issue 3, pp. 837-865, 2013. Available at SSRN: https://ssrn.com/abstract=2317657 or http://dx.doi.org/10.1111/j.1467-629X.2012.00484.x

Dan Weiss

Tel Aviv University - Coller School of Management ( email )

P.O. Box 39010
Ramat Aviv, Tel Aviv, 69978
Israel

Haim Falk

The Technion, Israel Institute of Technology ( email )

Faculty of Industrial Engineering & Management
Haifa 32000
ISRAEL
+972 4 829 4419 (Phone)

Uri Ben Zion

Ben-Gurion University of the Negev

1 Ben-Gurion Blvd
Beer-Sheba 84105, 84105
Israel

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