Too Much of a Good Thing? Risk Disclosure and Corporate Innovation
44 Pages Posted: 30 Sep 2017 Last revised: 29 May 2019
Date Written: May 28, 2019
Consistent with theoretical models that show disclosure can reduce uncertain investments, we find that mandating risk disclosure is negatively associated with corporate innovation. Using a textual analysis of a large sample of 10-K filings for US firms, we identify a negative relationship between risk disclosure and firm-level investments in R&D and innovation output in terms of patents and citations. Furthermore, the channel for this decline seems to be linked to financial constraints, with risk disclosure having a larger impact on innovation among firms with financial constraints. These results suggest that a mandatory risk disclosure requirement can have unintended real consequences for firms making uncertain investments, such as innovation.
Keywords: Risk, disclosure, innovation, patents, research and development, 10-K filings, Item 1A
JEL Classification: G30, M40, O30, O31, O32
Suggested Citation: Suggested Citation