Disclosure Rules and R&D Spending Revisited
Contemporary Accounting Research, Vol. 11, Issue 1, 1994
University of Alberta School of Business Research Paper No. 2013-660
Posted: 2 Jul 2013
Date Written: June 1, 1993
Abstract
This article reconciles a disparity between one of Hughes and Kao's (1991) predictions on the effects of firm disclosures regarding future benefits of R&D spending and evidence of reductions in R&D spending pursuant to SFAS No. 2 reported by Horowitz and Kolodny (1980) and others. By assuming Bertrand price competition in place of Cournot quantity competition, it is shown that equilibrium R&D expenditures by risk-averse duopolists will be lower when firm disclosures are uninformative about R&D outcomes than when they are informative. This result is especially useful in that price competition appears to be descriptive of competition in high technology industries.
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