Essays on Financial Disclosure and Innovation Defended on Saturday, 2 December 2023

The corporate sector wields significant influence over industries and societies through its innovation activities. However, the financing of corporate innovation is hindered by information asymmetry, resulting in underinvestment in corporate R&D. A comprehensive understanding of firms' incentives or disincentives to engage in R&D activities and disclose R&D information is crucial for governments and regulatory bodies to make informed decisions regarding the implementation of policies that promote R&D investment. This dissertation investigates firms' incentives for R&D disclosure and investment, presenting empirical and analytical evidence in three areas.

In Chapter 2, I analyse firms' strategic concerns regarding R&D disclosure in financial reporting within the context of an R&D race. The study identifies varying equilibrium disclosure strategies based on investment and disclosure costs. An asymmetric disclosure mandate is proposed as a resolution to selection issues in the asymmetric equilibrium on determining the disclosing and the nondisclosing firm, despite the potential negative spillover effects.

Chapter 3 focuses on a newly established Chinese stock market with a disclosure mandate regarding R&D information, where firms reduce voluntary R&D disclosure when their peers are subject to the mandate. This reduction is primarily driven by cost-saving incentives. Remarkably, the diminished disclosure does not adversely affect stock liquidity.

Chapter 4 examines the impact of a firm's political connections on innovation. By utilizing US special elections as a quasi-natural experiment, the study reveals a negative influence of political connections on firm innovation, indicating a shift from long-term to short-term activities due to managerial short-termism. However, this effect is constrained by various disciplining forces in place. Overall, the findings contribute to our understanding of firms' decision-making processes and outcomes in innovation and aid policymakers and researchers in shaping effective strategies to promote innovation and address information asymmetry in corporate R&D.