Management Accounting Section Midyear Meeting

The Impact of Private Channel on Information Disclosure - Evidence from Board Network and R&D Narrative

• In Event: Performance Measures and Innovation (Mixed Methods)

Abstract

Firms weigh the costs of public disclosure against the benefits of information transparency when disseminating narrative R&D information. In this paper, we examine whether firms with private information dissemination channels will reduce their public disclosure of narrative R&D information by investigating the effect of director network connections on firms’ narrative R&D disclosure. Consistent with our expectation, we find that firms with better-connected directors disclose less narrative R&D information. This association is stronger for firms with: (1) higher litigation risk, (2) larger proprietary costs, (3) more opportunities to interact with directors at other firms, and (4) weaker corporate governance. Our results remain robust to employing the staggered adoption of the Universal Demand laws and the Inevitable Disclosure Doctrine as quasi-natural experiments, measuring the content of narrative R&D disclosure, addressing the Reg FD effect, using alternative measures of board network, and controlling for alternative private communication channels through financial analysts, institutional investors, and creditors. Collectively, our findings suggest that directors’ connection may serve as a private channel of disseminating narrative R&D information, substituting for the public channel of disclosure.

Authors

• Jing Dai, Southwestern University of Finance and Economics

• Nan Hu, Xi'an Jiaotong University

• Rong Huang, Fudan University

• Xingnan Xue, Xi’an Jiaotong University