New Product Announcements, Innovation Disclosure, and Future Firm Performance

59 Pages Posted: 23 Mar 2020 Last revised: 3 Dec 2020

See all articles by Jenny Chu

Jenny Chu

University of Cambridge - Judge Business School

Yuan He

The University of Hong Kong - Faculty of Business and Economics

Kai Wai Hui

The University of Hong Kong (HKU) - Department of Accounting

Reuven Lehavy

University of Michigan, Stephen M. Ross School of Business

Date Written: December 2, 2020

Abstract

This study examines the relation between voluntary, non-financial disclosures of new product innovation and future firm performance. Measuring innovation based on the narratives in new product announcements (NPAs), we find that the level of innovation disclosed in NPAs predicts future financial performance for up to two years (after controlling for R&D capital and patents). Furthermore, we find that under capital markets pressures to deliver growth, managers provide a more comprehensive disclosure of new product innovation that maps into higher future sales. However, managerial incentives affect how the disclosure of new product innovation predicts future earnings as the higher innovation is associated with higher future costs. Our results suggest that capital markets pressures drive managers to conduct a form of “real innovation management” by delivering high innovation and sales but incurring higher costs. Myopic managers do so since costs are not disclosed in NPAs and are incurred in the future, while they may reap the benefits of an immediate positive market reaction at new product announcement. Overall, our study contributes to the understanding of managers’ disclosure of new product innovation.

Keywords: new product announcements, innovation, corporate disclosure, managerial incentives, earnings performance, qualitative disclosure, narrative disclosure

JEL Classification: M41, G34, G35

Suggested Citation

Chu, Jenny and He, Yuan and Hui, Kai Wai and Lehavy, Reuven, New Product Announcements, Innovation Disclosure, and Future Firm Performance (December 2, 2020). Available at SSRN: https://ssrn.com/abstract=3543632 or http://dx.doi.org/10.2139/ssrn.3543632

Jenny Chu (Contact Author)

University of Cambridge - Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom

Yuan He

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Kai Wai Hui

The University of Hong Kong (HKU) - Department of Accounting ( email )

Pokfulam Road
Hong Kong, Pokfulam
Hong Kong

Reuven Lehavy

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

701 Tappan Street
Ann Arbor, MI 48109
United States
734-763-1508 (Phone)
734-936-0282 (Fax)

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