Intended and unintended effects of mandatory R&D disclosure on innovation outcomes

Public policymakers always prefer having transparent corporate reporting to provide a level playing field for all participants through reporting mandates. The literature provides strong support for the concept that high-quality reporting improves capital market order. Using a sample of technology-intensive firms three years before and after the implementation of a mandatory R&D disclosure policy in China from 2009 to 2014, we examine the effectiveness of the mandatory disclosure policy in promoting innovation. Other than the intended positive effects, the R&D disclosure mandate attracts extra attention from the media and analysts, as well as pressure from institutional blockholders. Attention and pressure compel firms to shift their energy and resources to easy and quick-return innovations. We show that such unintended and easily overlooked knock-on effects cause firms to digress from their long-term innovation strategies to shortsighted innovation schemes yielding lower firm values.