【报告主题】Does Financial Information Presentation Format Matter? Evidence from Research and Development Expense Reporting
【主讲嘉宾】祝继高，对外经济贸易大学国际商学院教授
【报告时间】2024年4月23日 14:00
【报告地点】会计学院108室
【内容提要】
This paper investigates the real and capital market effects of a mandatory change in the presentation format of research and development (R&D) expense. We utilize a setting of China’s implementation of a new presentation format of corporate R&D expense that requires Chinese public firms to present their R&D expense on their income statements as a separate line item (income statement presentation), instead of as part of the general and administrative expenses supplemented by additional information in the notes to the financial statements (footnote presentation). We predict that this regulatory change will have a bigger impact on non-state-owned enterprises (non-SOEs) which are focused on their stock market valuation than state-owned enterprises (SOEs). Using a difference-in-differences approach, we find that non-SOEs report significantly higher R&D expense in the income statement presentation regime. Furthermore, the effect of the presentation format on reported R&D expense is more pronounced for firms facing higher peer pressure to engage in R&D and hi-tech firms, and less pronounced for firms with higher institutional investment. We also find that the positive valuation implication of reported R&D expense diminishes after the presentation format change, suggesting that the markets potentially discount the increase in R&D expense.Additional analysis shows that firms’ innovation efficiency decreases post-regulation. Our findings suggest that new R&D expense regulation may have incentivized firms to either misclassify other expenses as R&D or invest in lower quality R&D. However, the stock market rationally discounts the increased R&D with lower valuation.