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Articles (2018), Management Science, 64 (12)

CEO Confidence and Unreported R&D

KOH Ping-Sheng , REEB D. M., ZHOU W.

We investigate whether managerial traits influence corporate decisions to provide mandatory financial disclosures. The results indicate that firms with confident chief executive officers (CEOs) are 24% more likely to report their research and development (R&D) expenditures relative to firms with cautious CEOs. Exploiting staggered, state-level regulatory shocks and changes in CEO type, we find substantial evidence that cautious CEO firms fail to report R&D expenditures. After a plausibly exogenous shock to managerial reporting liability, cautious CEO firms exhibit a 35% larger reduction in unreported R&D relative to confident CEO firms. Interestingly, confident CEO firms do not exhibit more innovation than their cautious CEO counterparts after taking into account their differing propensities to report corporate R&D. Overall, our analysis suggests that the precision or reliability of mandatory disclosures systematically varies with managerial characteristics.

KOH, P.S., REEB, D.M. and ZHOU, W. (2018). CEO Confidence and Unreported R&D. Management Science, 64(12).