Companies that disclose their R&D activities in annual reports enable investors to predict future performance more reliably. While R&D investment is necessary for growth, its associated payoffs are uncertain. Researchers found that managers' language in annual reports contains valuable insights for predicting the future. A comprehensive analysis involving 6,500 firm-year observations identified the management discussion section as the most informative resource for investors regarding R&D. Financial statement disclosures concerning R&D are often minimal due to a lack of mandatory requirements, making the voluntary management discussion section particularly important.
Companies that disclose their R&D activities in annual reports enhance predictability of future performance for investors, despite inherent uncertainties in related expenditure.
The research highlights the significance of language and narratives used in annual reports which can offer investors deeper insights beyond mere numerical data.
A study analyzing nearly 6,500 firm-year observations suggests that the management discussion section of annual reports is the most informative about R&D to investors.
R&D disclosures in financial statements are minimal due to lack of mandatory requirements, making the voluntary management discussion section crucial for investor insights.
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