Technology Spillover and Corporate Technology Disclosures

Abstract

In modern economies, technological knowledge can flow between firms through various channels. We test an economic theory that firms most likely to benefit from such knowledge flows disclose information about their technologies more readily, probably to attract technologically compatible counterparties. Consistent with theory, we find that greater potential value of knowledge flows to a focal firm, which we refer to as “technology spillover”, is associated with the firm’s voluntary disclosure of more R&D-related information in 10-K reports. We control for firm fixed effects and employ quasi-exogenous shocks to states’ R&D tax laws to enhance the inference of causality. In additional analyses, we find that firms subject to greater technology spillover are less likely to redact information from technology-related contracts filed with the Securities and Exchange Commission. Because the proprietary cost theory predicts that product market rivalry should be negatively associated with disclosures that aid rival firms, we control for product market rivalry in all analyses. Therefore, we demonstrate that the positive effects of technology spillover on the quantity and details of technology-related disclosures co-exist with the more familiar negative effects of proprietary costs.

Keywords: disclosure, technology, knowledge spillover, proprietary costs, redaction

JEL Classification: G14, L1, M40, M41