Peer R&D Disclosure and Corporate Innovation: Evidence from American Depositary Receipt Firms

Advances in Accounting, Forthcoming

45 Pages Posted: 16 Mar 2020

See all articles by Elizabeth A. Gordon

Elizabeth A. Gordon

Temple University - Department of Accounting

Hsiao-Tang Hsu

Texas A&M University - Corpus Christi

Huichi Huang

Oregon State University - College of Business

Date Written: February 1, 2020

Abstract

In this paper, we examine the effect of peer research and development (R&D) disclosures on corporate innovation. R&D disclosures can generate externalities for related firms, enabling those firms to better infer a project’s likely payoffs and thus prioritize projects with higher net present values. We use a sample of foreign firms cross-listed on U.S. exchanges to investigate whether U.S. peer firms experience externalities from the cross-listing firm’s R&D disclosures. We find that R&D disclosures by cross-listing firms are associated with greater innovation for industry peers in the U.S. market, especially when product market competition is high. The effect also varies with the home country’s legal protection systems, disclosure environments, and accounting reporting rules. Cross-sectional analyses indicate that the externalities are more pronounced in industries or firms that rely more on external financing and firms subject to higher financial constraints; disclosures of higher quality appear to promote innovation by ameliorating financing frictions. Overall, this study provides evidence of R&D disclosure as an industry-wide determinant of innovation, thereby contributing to literature on the real effects of peer disclosures.

Keywords: Research & Development, Peer-Firm Disclosures, Innovation, Cross-Listing

JEL Classification: O32, G30, M41, G15

Suggested Citation

Gordon, Elizabeth A. and Hsu, Hsiao-Tang and Huang, Huichi, Peer R&D Disclosure and Corporate Innovation: Evidence from American Depositary Receipt Firms (February 1, 2020). Advances in Accounting, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3548155

Elizabeth A. Gordon

Temple University - Department of Accounting ( email )

Philadelphia, PA 19122
United States
2152046422 (Phone)

Hsiao-Tang Hsu

Texas A&M University - Corpus Christi ( email )

6300 Ocean Drive
Corpus Christi, TX 78412
United States

Huichi Huang (Contact Author)

Oregon State University - College of Business ( email )

224D Bexell Hall
Corvallis, OR 97331
United States

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