New Product Announcements, Innovation Disclosure, and Future Firm Performance

56 Pages Posted: 23 Mar 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: February 22, 2020

Abstract

Our study extends the literature on product innovation by investigating the managerial disclosure of new product innovation in the context of the tension between managerial incentives and disclosure. To test our empirical predictions, we develop a dictionary-based innovation disclosure measure derived from the narratives in new product announcements (NPAs). We find that: 1) investors positively and significantly respond to the extent of innovation disclosed in NPAs, 2) the degree of innovation disclosed in NPAs predicts future financial performance for up to two years (after controlling for R&D capital and patents), and 3) managerial disclosure incentives affect the level of innovation disclosure and its performance predictability. We further document that the effect of managers’ disclosure incentives is not uniform across different earnings components. Overall, our study contributes to the understanding of managers’ strategic behavior in disclosing 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 (February 22, 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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