The Real Effects of Financial Markets on Scientific Disclosure: Evidence From a Quasi-Natural Experiment

Abstract

While innovation disclosure is essential for cumulative knowledge production and economic growth, evidence on firm incentives to disclose innovation outcomes is lacking. We examine the role of financial markets in firms’ decisions to disseminate scientific research results. We employ a quasi-natural experiment that exploits plausibly exogenous variation in analyst coverage, resulting in higher information asymmetries. We find that firms respond by a quick and enduring increase in scientific publications. We also show that disclosure decisions are shaped by financial constraints and managerial incentives. We discuss important implications, such as potential crowding effects between transparency initiatives and socially desirable innovation disclosure.

Keywords: information asymmetries, innovation disclosure, corporate science, financial analysts, signaling, innovation, R&D

JEL Classification: O32, O34, G30