Not Available for Download

Information Distortion, R&D, and Growth

Posted: 21 Nov 2017  

Stephen J. Terry

Boston University

Toni M. Whited

University of Michigan, Stephen M. Ross School of Business; National Bureau of Economic Research

Anastasia A. Zakolyukina

University of Chicago - Booth School of Business

Date Written: November 19, 2017

Abstract

Do firms' opportunistic withholding and disclosure of information affect their investment in R&D? To answer this question, we estimate a dynamic model that incorporates a trade-off between R&D investment and earnings manipulation. This model allows for the increase in the expected penalty for misreporting introduced by a disclosure regulation to translate into investment distortions and lost firm value. We find that incentives to distort information have a large impact on firm value of 13%. With these incentives in place, regulations to prevent information distortion spill over into distortions in real investment, whose volatility rises by 10%. This excess volatility in turn lowers firm value by half a percent.

Keywords: Information, disclosure, R&D, Growth

JEL Classification: E22, G31, G34, M41, K22, K42

Suggested Citation

Terry, Stephen J. and Whited, Toni M. and Zakolyukina, Anastasia A., Information Distortion, R&D, and Growth (November 19, 2017). Available at SSRN: https://ssrn.com/abstract=3073956

Stephen Terry

Boston University ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States

Toni Whited (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

National Bureau of Economic Research ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Anastasia Zakolyukina

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773.834.4838 (Phone)
773.926.0941 (Fax)

Paper statistics

Abstract Views
204