Stock Market Liberalization and R&D Disclosure: Evidence from China

Abstract

Using Shanghai-Hong Kong Stock Connect program as a quasi-natural experiment, we examine whether and how stock market liberalization affects companies’ R&D disclosure in China. Contrary to the positive impact of market liberalization on overall firm disclosure, we find that market liberalization reduces companies’ R&D disclosure. This effect is more prominent for companies with higher proprietary costs. We argue that firms adjust their R&D disclosure to protect their proprietary information. We also find that managers disclose R&D information strategically by reducing the quantity of R&D disclosure and increasing the level of optimism in disclosure.

Keywords: Market liberalization, Proprietary costs, R&D disclosure, Strategic reporting

JEL Classification: G18, G32, K42