New Product Announcements, Innovation Disclosure, and Future Firm Performance

The Review of Accounting Studies

47 Pages Posted: 23 Mar 2020 Last revised: 27 Nov 2023

See all articles by Jenny Chu

Jenny Chu

University of Cambridge - Judge Business School

Yuan He

Xiamen University

Kai Wai Hui

University of Hong Kong

Reuven Lehavy

University of Michigan, Stephen M. Ross School of Business

Date Written: November 20, 2023

Abstract

This study examines the properties of innovation disclosures contained in new product announcements (NPAs), a form of voluntary, non-financial disclosure. We analyze these properties using a novel, text-based measure of the extent of product innovation disclosed in NPAs. We find that stock prices react more positively to NPAs with more extensive innovation disclosure. In our main analyses, we first find that a higher level of innovation disclosure predicts a greater increase in future sales. We further find that this predictive ability is reduced when managers have stronger incentives to maximize their wealth, and when the corporate governance structure and customers’ bargaining power are weaker. Our research enhances the understanding of the properties of managerial voluntary, non-financial disclosures and contributes a text-based measure of innovation that captures managerial assessment of the extent of innovation in new products. This new measure is more generalizable and incrementally informative for firm value and future performance than conventional innovation measures that depend on the existence of patents or research and development expenses.

Keywords: new product announcements; innovation; voluntary disclosure; incentives; performance; qualitative, narrative disclosure.

JEL Classification: M41, G34, M13

Suggested Citation

Chu, Jenny and He, Yuan and Hui, Kai Wai and Lehavy, Reuven, New Product Announcements, Innovation Disclosure, and Future Firm Performance (November 20, 2023). The Review of Accounting Studies, Available at SSRN: https://ssrn.com/abstract=3543632 or http://dx.doi.org/10.2139/ssrn.3543632

Jenny Chu (Contact Author)

University of Cambridge - Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom

Yuan He

Xiamen University ( email )

Xiamen, Fujian 361005
China

Kai Wai Hui

University of Hong Kong ( email )

Pokfulam Road
Hong Kong, Pokfulam
Hong Kong

Reuven Lehavy

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI 48109
United States
734-763-1508 (Phone)
734-936-0282 (Fax)

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