Voluntary disclosure in R&D-Intensive industries

Disclosures about research and development (R&D) activities could potentially help market participants understand the future prospects of R&D-intensive firms, but at the same-time could be costly to make if the disclosure is related to proprietary information. I examine R&D-related disclosures made by R&D-intensive firms in their annual reports, as well as those made throughout the year to financial analysts. I find that the level of R&D-related voluntary disclosure is higher when proprietary costs are lower and when the book-to-market ratio is lower, perhaps because the basic financial statements are less informative about market value. In addition, after controlling for the level of general disclosure and forward-looking disclosure, I find a negative relation between disclosures about development-stage R&D and both analysts' one-year-ahead sales forecast error and dispersion. This is consistent with disclosures about development-stage R&D reducing analyst uncertainty about one-year-ahead sales. I find mixed evidence about earnings forecasts. A higher level of disclosure about both R&D projects in progress and development-stage R&D is associated with less error in analysts' one-year-ahead earnings forecasts. However, I find no evidence of a relation between R&D-related disclosure and dispersion in one year-ahead earnings forecasts.