Mandatory Disclosure of R&D Expenditures and Analyst Forecasts

Abstract

ABSTRACT Using a natural experiment mandatorily requiring listed firms to disclose R&D activities in the context of China, this paper quantifies the effects of such mandatory disclosure on analyst forecasts, and show that mandatory R&D disclosure significantly decreases analyst forecast accuracy and increases the dispersion of analyst forecasts. Then, we present the underlying mechanisms driving our findings: the ability of analysts and detailed R&D information. Finally, our results are more pronounced in state-owned enterprises and industries with little competition. We show the economic significance of mandatory R&D information disclosure on capital markets. Overall, this study contributes to the literature by evaluating the unintended consequences of mandatory R&D information disclosure on analyst forecasts.