Voluntary Disclosure in R&D Intensive Industries

Disclosures about R&D activities could potentially help market participants understand the future prospects of R&D intensive firms, but at the same time could be costly to make if the disclosure is related to proprietary information. I examine R&D-related disclosures made by R&D intensive firms in their annual report, as well as throughout the year to financial analysts. I find that the level of R&D-related voluntary disclosure is higher when proprietary costs are lower and when the book to market ratio is lower, perhaps because the basic financial statements are less informative about market value. In addition, after controlling for the level of general disclosure and forward looking disclosure, I find a negative relation between disclosures about development stage R&D and both analysts' one-year-ahead sales forecast error and dispersion. This is consistent with disclosures about development stage R&D reducing analyst uncertainty about one-year-ahead sales. I find mixed evidence about earnings forecasts. A higher level of disclosure about both R&D projects in progress and development stage R&D is associated with less error in analysts' one-year-ahead earnings forecasts. However, I find no evidence of a relation between R&D-related disclosure and the dispersion in one-year-ahead earnings forecasts