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Disclosure Rules and R&D Spending Revisited

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  • JOHN S. HUGHES
  • JENNIFER L. KAO

Abstract

. This article reconciles a disparity between one of Hughes and Kao's (1991) predictions on the effects of firm disclosures regarding future benefits of R&D spending and evidence of reductions in R&D spending pursuant to SFAS No. 2 reported by Horowitz and Kolodny (1980) and others. By assuming Bertrand price competition in place of Cournot quantity competition, it is shown that equilibrium R&D expenditures by risk†averse duopolists will be lower when firm disclosures are uninformative about R&D outcomes than when they are informative. This result is especially useful in that price competition appears to be descriptive of competition in high technology industries. Résumé. Les auteurs réussissent à concilier l'une des prédictions de Hughes et Kao (1991) portant sur l'incidence de l'information présentée par l'entreprise au sujet des avantages futurs des dépenses de R†D, et l'évidence de la réduction des dépenses de R†D depuis l'entrée en vigueur du SFAS n***o 2, dont font état Horowitz et Kolodny (1980) ainsi que d'autres chercheurs. En substituant l'hypothèse de Bertrand relative à la concurrence axée sur le prix à celle de Cournot relative à la concurrence axée sur la quantité, les auteurs démontrent que les dépenses de R†D au point d'équilibre engagées par des entreprises en situation de duopole qui présentent une aversion pour le risque sont plus faibles lorsque l'information présentée ne renseigne pas sur les résultats découlant des dépenses de R†D que lorsque l'information présentée renseigne sur ces résultats. Cette conclusion est particulièrement utile du fait que le prix semble bien être l'objet de la concurrence que se livrent les entreprises des secteurs de haute technologie.

Suggested Citation

  • John S. Hughes & Jennifer L. Kao, 1994. "Disclosure Rules and R&D Spending Revisited," Contemporary Accounting Research, John Wiley & Sons, vol. 11(1), pages 633-646, June.
  • Handle: RePEc:wly:coacre:v:11:y:1994:i:1:p:633-646
    DOI: 10.1111/j.1911-3846.1994.tb00459.x
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    References listed on IDEAS

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    1. Richard J. Rosen, 1991. "Research and Development with Asymmetric Firm Sizes," RAND Journal of Economics, The RAND Corporation, vol. 22(3), pages 411-429, Autumn.
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    4. Kao, Jennifer L & Hughes, John S, 1993. "Note on Risk Aversion and Sharing of Firm-Specific Information in Duopolies," Journal of Industrial Economics, Wiley Blackwell, vol. 41(1), pages 103-112, March.
    5. James A. Brander & Barbara J. Spencer, 1983. "Strategic Commitment with R&D: The Symmetric Case," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 225-235, Spring.
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    7. John S. Hughes & Jennifer L. Kao, 1991. "Economic implications of alternative disclosure rules for research and development costs," Contemporary Accounting Research, John Wiley & Sons, vol. 8(1), pages 152-169, September.
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