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Signalling long‐term focus through textual emphasis on innovation: are firms putting their money where their mouth is?

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  • Luminita Enache
  • Hila Fogel‐Yaari
  • Heather Li

Abstract

Most Form 10‐K filings include non‐informative innovation‐related words. This study shows that textual emphasis on innovation (TEI) reflects the firm’s intention to focus on the long term and finds TEI to be trustworthy. TEI is positively associated with a firm’s long‐term investment and negatively associated with a firm’s under‐investment. Trustworthiness increases when the firm is subject to increased scrutiny. However, this signal is costly, because it is associated with over‐investment in innovation. The study contributes to the impression management and soft disclosure literatures and presents an efficient firm‐level measure in fighting short‐termism pressure.

Suggested Citation

  • Luminita Enache & Hila Fogel‐Yaari & Heather Li, 2022. "Signalling long‐term focus through textual emphasis on innovation: are firms putting their money where their mouth is?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(3), pages 3791-3836, September.
    • Handle: RePEc:bla:acctfi:v:62:y:2022:i:3:p:3791-3836
    DOI: 10.1111/acfi.12905
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