The value relevance of descriptive R&D intensity

Public firms have wide latitude to release descriptive research and development (R&D) information. Conceptually, a higher descriptive R&D intensity (DRDI) enables a more thorough assessment of a firm's prospects and reduces information asymmetry. However, such disclosure may undermine the firm's future competitive advantages by allowing competitors to observe the firm's R&D efforts more closely. By analyzing the textual content of 23,269 annual reports and leveraging the staggered statewide rejection of the inevitable disclosure doctrine as our instrumental variable for DRDI, we find that DRDI positively affects firm value. We also find that the presence of Chief Innovation Officer and intangible know-how positively, while financial leverage and market turbulence negatively, moderate the effect of DRDI on firm value. Notably, although both DRDI and numerical R&D intensity (NRDI) deliver potentially valuable information about R&D activities, DRDI is distinct from and has a more significant explanatory power of firm value than NRDI.

Automated summary

Public firms have the freedom to release descriptive research and development (R&D) information. Higher descriptive R&D intensity (DRDI) can lead to a more accurate assessment of a firm's prospects and reduce information asymmetry. However, such disclosure may weaken the firm's competitive advantages in the future. The study finds that DRDI positively affects firm value, and the presence of a Chief Innovation Officer and intangible know-how moderate this effect.