The relationship between R&D intensity, conservatism, and management earnings forecast issuance
Document Type
Article
Source of Publication
Advances in Accounting
Publication Date
9-1-2023
Abstract
R&D-intensive firms suffer from high information asymmetry and high proprietary costs and are prone to exhibit bottom-line losses given the unconditional conservative accounting treatment of R&D expenses. We examine how R&D intensity influences the issuance of management earnings forecasts (MEFs) across levels of accounting conservatism, controlling for proprietary costs and other earnings guidance determinants. We provide insights into how managers view the tradeoffs of using MEF disclosures to lower information asymmetry versus the costs of releasing proprietary information to competitors and the loss of reputational capital that could arise from providing inaccurate forecasts. We find that although R&D intensity and conditional conservatism are negatively related to the issuance of MEFs, as shown in prior research, at high levels of research intensity and the accompanying uncertainty about future payoffs, the negative association between conditional conservatism and MEF issuance is mitigated. These findings point to a role for conditional conservatism as a credibility enhancer for managers of R&D intense firms.
DOI Link
ISSN
Publisher
Elsevier BV
Volume
62
Disciplines
Business
Keywords
Conservatism, Management earnings forecasts, R&D intensity
Scopus ID
Recommended Citation
Kannan, Yezen; Khallaf, Ashraf; Gleason, Kimberly; and Bostan, Ibrahim, "The relationship between R&D intensity, conservatism, and management earnings forecast issuance" (2023). All Works. 5882.
https://zuscholars.zu.ac.ae/works/5882
Indexed in Scopus
yes
Open Access
no