Discretionary Disclosure and Manager Horizon: Evidence from Patenting
Review of Accounting Studies, Forthcoming
60 Pages Posted: 24 Mar 2017 Last revised: 30 Dec 2019
Date Written: September 24, 2019
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: Suggested Citation