Do Innovative Firms Communicate More? Evidence From the Relation Between Patenting and Management Guidance

52 Pages Posted: 19 Dec 2019 Last revised: 27 Sep 2021

See all articles by Sterling Huang

Sterling Huang

Singapore Management University - School of Accountancy

Jeffrey Ng

Hong Kong Polytechnic University - School of Accounting and Finance

Tharindra Ranasinghe

American University

Mingyue Zhang

University of Toronto - Rotman School of Management

Date Written: February 5, 2020

Abstract

Successful innovations could induce more disclosure if the information asymmetry between the firm and its investors about post-innovation outcomes leads investors to demand more information. However, such innovations also likely entail greater proprietary cost concerns, which deter disclosure. This paper uses patent grants to examine the effect of innovation success on management guidance behavior. We find that more management guidance follows patent grants, suggesting that despite disclosure cost concerns, firms with successful innovations do respond to information demand. This association is stronger after enactment of Regulation Fair Disclosure and for firms with greater institutional investor ownership, further highlighting the role of information demand. The association is weaker for firms with more competition, consistent with proprietary cost concerns having a moderating impact. Overall, our findings suggest that innovation creates demand for more voluntary disclosure and firms’ disclosure decisions following innovation outcomes vary in ways that disclosure theory and economic intuition predict.

Keywords: Innovation, Patents, Voluntary Disclosure, Management Forecasts

JEL Classification: G30, G32, G38, M41, M48

Suggested Citation

Huang, Sterling and Ng, Jeffrey and Ranasinghe, Tharindra and Zhang, Mingyue, Do Innovative Firms Communicate More? Evidence From the Relation Between Patenting and Management Guidance (February 5, 2020). The Accounting Review, 96 (1), (2021): 273–297., Singapore Management University School of Accountancy Research Paper No. 2020-119, Available at SSRN: https://ssrn.com/abstract=3497139 or http://dx.doi.org/10.2139/ssrn.3497139

Sterling Huang

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore
6808 7929 (Phone)

Jeffrey Ng (Contact Author)

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Hung Hom
Kowloon
Hong Kong

Tharindra Ranasinghe

American University ( email )

United States

Mingyue Zhang

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

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