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<p>This paper investigates the effects of a regulatory change in China of the presentation format for research and development (R&amp;D) expense, which mandates public firms to explicitly present R&amp;D expense on their income statements. We predict that this regulation will impact nonstate-owned enterprises (non-SOEs), which care about stock market valuation, more than state-owned enterprises (SOEs). We find that non-SOEs report significantly higher R&amp;D expense post regulation. Furthermore, the R&amp;D increase strengthens for firms facing higher peer pressure to pursue R&amp;D and high-tech firms and weakens for firms with higher institutional investment. The positive valuation implication of R&amp;D diminishes post regulation, suggesting that investors discount the increase in R&amp;D expense. An additional analysis shows that firms’ innovation efficiency decreases post regulation. </p>

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Does financial information presentation format matter? Evidence from Chinese firms’ reporting of research and development expense

  • 期刊论文

  • 出版模式：

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  • 发表日期：

    2025年2月11日

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  • Partha Mohanram,
  • Wei Sun,
  • Baohua Xin,
  • Jigao Zhu

摘要

This paper investigates the effects of a regulatory change in China of the presentation format for research and development (R&D) expense, which mandates public firms to explicitly present R&D expense on their income statements. We predict that this regulation will impact nonstate-owned enterprises (non-SOEs), which care about stock market valuation, more than state-owned enterprises (SOEs). We find that non-SOEs report significantly higher R&D expense post regulation. Furthermore, the R&D increase strengthens for firms facing higher peer pressure to pursue R&D and high-tech firms and weakens for firms with higher institutional investment. The positive valuation implication of R&D diminishes post regulation, suggesting that investors discount the increase in R&D expense. An additional analysis shows that firms’ innovation efficiency decreases post regulation.