Corporate Innovation and Disclosure Strategy |
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Authors: | Zheyuan Zhang Huiying Wu Sammy Xiaoyan Ying Jiaxing You |
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Affiliation: | 1. Administration of Xiamen Area of China (Fujian) Pilot Free Trade Zone, Xiamen, China;2. School of Business, Western Sydney University, Penrith South, NSW, Australia;3. Newcastle Business School, University of Newcastle, Sydney, NSW, 2000 Australia;4. School of Management, Xiamen University, China |
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Abstract: | This study investigates the impact of firm innovation on MD&A disclosure. Firms need to reduce information asymmetry to assist investors on the one hand and to prevent rivals from benefitting from disclosures on the other. Innovative firms can use an optimistic tone to convey good news but increase content similarity to reduce proprietary costs. Management chooses a certain content similarity and tone strategy for an innovation and as the number of innovations increases, the ratio of similar innovation disclosure and positive tone increases in the overall MD&A, resulting in greater content similarity and more news conveyed with a positive tone. We find that the firm's level of innovation is positively related to content similarity and tone optimism. We also find that this positive relation is more pronounced when product market competition is stronger and when regional intellectual property rights protection is weaker. Our further analyses on market responses provide evidence suggesting that management's disclosure strategy functions as intended. |
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Keywords: | Content similarity Disclosure strategy Innovation Management discussion and analysis Optimistic tone Proprietary costs |
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