Discretionary Disclosure and Manager Horizon: Evidence from Patenting

Review of Accounting Studies, Forthcoming

60 Pages Posted: 24 Mar 2017 Last revised: 30 Dec 2019

See all articles by Stephen Glaeser

Stephen Glaeser

University of North Carolina (UNC) at Chapel Hill - Accounting Area

Jeremy Michels

University of Pennsylvania - Accounting Department

Robert E. Verrecchia

University of Pennsylvania - Accounting Department

Date Written: September 24, 2019

Abstract

We examine the relation between manager horizon and discretionary disclosure, using patenting as a measure of disclosure. Patenting reflects, in part, a manager’s decision to disclose the successful outcome of research and development (R&D). When a firm invests in R&D but does not patent, investors are unsure whether this reflects a failed R&D project or the manager choosing not to patent. We suggest that investors’ beliefs about a manager’s horizon—whether the manager seeks to maximize short-term stock price or long-term profits—moderates their reactions. When investors believe a manager’s horizon is short, they expect the manager to disclose successful outcomes and therefore discount nondisclosure more. We predict that managers will patent more per dollar of R&D spending when their horizons are short and that investors will discount the value of nondisclosing firms more when they believe the manager’s horizon is short. We find evidence consistent with these predictions.

Keywords: Discretionary disclosure, voluntary disclosure, manager horizon, patents, trade secrets, innovation, research and development

JEL Classification: D23, M41, O30, O31, O32, O33

Suggested Citation

Glaeser, Stephen and Michels, Jeremy and Verrecchia, Robert E., Discretionary Disclosure and Manager Horizon: Evidence from Patenting (September 24, 2019). Review of Accounting Studies, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2939852 or http://dx.doi.org/10.2139/ssrn.2939852

Stephen Glaeser

University of North Carolina (UNC) at Chapel Hill - Accounting Area ( email )

McColl Building
Chapel Hill, NC 27599
United States

Jeremy Michels (Contact Author)

University of Pennsylvania - Accounting Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Robert E. Verrecchia

University of Pennsylvania - Accounting Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-898-6976 (Phone)
215-573-2054 (Fax)

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