Corporate innovation and R&D expenditure disclosures

Abstract

• This study focuses on voluntary R&D expenditure disclosure. • Firms that report blank R&D expenditure might have patent activities. • Institutional environment affects the reliability of R&D expenditure disclosure. • Chinese firms without R&D expenditure disclosures have fewer innovation outcomes. • Competition mitigates the motivation of R&D expenditure disclosures in China. This study investigates innovation output by examining patents of listed companies with and without R&D expenditure disclosures and the role of product market competition in R&D expenditure disclosure choices when the institutional environment of an emerging market tends to be relatively transparent. Using the data of Chinese listed firms from 2007 to 2014, which provides an appropriate setting for our study, we find a positive relationship between R&D expenditure disclosures and the quantity of patents and patent applications, which is consistent with the institutional hypothesis. Moreover, we show that in the absence of sufficient institutional protection, market competition has a negative effect on R&D expenditure disclosures, which is consistent with the product market competition hypothesis. Further analyses show that this relation is affected by firm size, state ownership, loss-making, and analyst coverage. The results remain consistent after several robustness checks. This study contributes to the literature by shedding light on the usefulness of voluntary R&D expenditure disclosures for predicting innovation outcomes in emerging markets.