Asymmetric Information and R&D Disclosure: Evidence from Scientific Publications

Abstract

We examine how asymmetric information in financial markets affects voluntary R&D disclosure, considering scientific publications as a disclosure channel. Difference-in-differences regressions around brokerage house mergers and closures indicate a quick and sustained increase in scientific publications from treated firms relative to the number of publications from control firms. The treatment effects are concentrated among firms with a large increase in information asymmetry and decline in investor demand, firms with greater financing constraints, and firms with low proprietary costs. We do not find evidence of changes in financial disclosure, nor do we find changes in patenting. Results from ordinary least squares regressions show that scientific publications by firms are positively associated with investor attention toward those firms. We complement these results with qualitative evidence from conference calls. Our results highlight the limitations and trade-offs that R&D firms face in their financial market disclosure policies.

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

JEL Classification: O32, O34, G30