Mandatory R&D disclosure and analyst forecast Accuracy: Evidence from an emerging market

Abstract

Exploiting the mandatory R&D disclosure policy in China, we capitalize on a difference-in-differences framework to examine whether mandatory R&D disclosure matters to analyst forecast accuracy in a sample of technology intensive firms. We find that, after mandatory R&D disclosure, forecast errors decrease significantly more for treatment firms (i.e., firms that chose not to disclose R&D investments before the mandate policy) relative to control firms (i.e., firms that did voluntary disclosure of R&D investments before the mandate policy). Further, we show that the impact of mandatory R&D disclosure is more pronounced when there is high information asymmetry within the firm or an industry as well as when analysts are working under unfavorable conditions. Overall, our findings demonstrate the positive effect of mandatory R&D disclosure on reducing information asymmetry and shed light on the importance of R&D disclosure reform in developing markets.