Manager perception and proprietary investment disclosure

Abstract

This paper investigates the role of manager perception in proprietary disclosure decisions. I find robust evidence that firms with overconfident CEOs (managers who are more likely to perceive proprietary costs to be lower) provide significantly more narrative R&D disclosures than firms without overconfident CEOs. In cross-sectional analysis, I find that this result is driven by observations where proprietary costs are more significant and salient. Consistent with R&D disclosures being proprietary, I find that the return on R&D is significantly lower when firms have more R&D disclosure and that this relation is not impacted by the presence of an overconfident CEO except through higher R&D disclosure. Finally, I find no association between having an overconfident CEO and nonproprietary disclosure. Collectively, these results suggest that manager perception of proprietary costs is an important determinant of firms’ voluntary proprietary disclosure.

Keywords: Voluntary Disclosure, Overconfidence, Proprietary Information, R&D

JEL Classification: M10, M41, G30