Disclosure of Innovation Activities by High-Technology Firms

46 Pages Posted: 8 Sep 2003  

Feng Gu

State University of New York at Buffalo

John Q. Li

Suffolk University - Sawyer School of Management

Abstract

This study investigates management incentive to disclose non-GAAP indicators concerning innovation in high-technology industries and the usefulness of the disclosure. As predicted, we find that firms increase disclosures of innovation when current earnings are less informative, or when future earnings are more uncertain. This finding is consistent with firms increasing disclosure in response to investor information demands when accounting data are less useful in assessing firm value. We also find that disclosures of innovation contain price-sensitive news. In addition, we find that disclosures of innovation are positively associated with the firm's future sales growth, profitability, and stock returns, after controlling for current performance and other factors known to influence future performance. This evidence is consistent with management disclosure conveying value-relevant information that is not reflected in current performance, but is predictive of future performance.

Keywords: disclosure, innovation, high-technology firms, value-relevance

JEL Classification: M41, M45, G12

Suggested Citation

Gu, Feng and Li, John Q., Disclosure of Innovation Activities by High-Technology Firms. Asia-Pacific Journal of Accounting and Economics, Vol. 10, No. 2, December 2003. Available at SSRN: https://ssrn.com/abstract=428880 or http://dx.doi.org/10.2139/ssrn.428880

Feng Gu (Contact Author)

State University of New York at Buffalo ( email )

12 Capen Hall
School of Management
Buffalo, NY 14221

John Q. Li

Suffolk University - Sawyer School of Management ( email )

8 Ashburton Place
Beacon Hill
Boston, MA 02108-2770
617-305-1704 (Phone)
617-573-8345 (Fax)

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