Narrative disclosure and earnings performance: : evidence from R&D disclosures

• Autores: Kenneth J. Merkley
• Localización: Accounting review: A quarterly journal of the American Accounting Association, ISSN 0001-4826, Vol. 89, Nº 2, 2014, págs. 725-757
• Idioma: inglés
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• Resumen

  • This paper examines how earnings performance relates to firms' narrative R&D disclosure decisions. The unique nature of R&D investments and financial statements' limited ability to communicate the value of such investments highlight the role of narrative disclosure as a supplement to the financial statements. I predict and find that current earnings performance (adjusted for R&D expense) is negatively related to the quantity of narrative R&D disclosure. Conducting a content analysis of the detail, tone, and readability of narrative R&D disclosures, I find that managers adjust R&D disclosures based on earnings performance to provide relevant information rather than to obfuscate performance. Finally, I provide evidence that market participants find narrative R&D disclosure informative because it significantly affects sell-side analyst behavior, disclosure information content, and information asymmetry