Peer R&D Disclosure and Corporate Innovation: Evidence from U.S. Cross-Listed Firms

• In Event: Forum on the Structure of Communication

Abstract

Studying the effect of R&D disclosures on innovation by peer firms in an industry can specify the information externalities of peer R&D disclosures. A sample of foreign firms cross-listed on U.S. exchanges (American Depositary Receipts [ADRs]) provides the setting for studying a richer peer R&D disclosure environment. The findings reveal that R&D disclosures by ADRs spur innovation for industry peers in the U.S. market, and the effect varies with the home country’s legal protection systems and disclosure environments. The results hold even after controlling for endogeneity, using propensity matched samples or first-time ADR R&D disclosers in the focal setting. Cross-sectional analyses indicate that the externalities are more pronounced in industries or firms that rely more on external financing and firms subject to higher financial constraints; disclosures of higher quality appear to promote innovation by ameliorating financing frictions. Overall, this study provides evidence of a market-wide determinant of innovation, thereby contributing to literature on the real effects of peer disclosures.

Authors

• Hsiao-Tang Hsu, Texas A&M University- Corpus Christi

• Huichi Huang, North Dakota State University

• Elizabeth Gordon, Temple University