The Mitigating Effect of Pending Patent Disclosure on Myopic R&D Underinvestment

Date
2021
Authors
Chen, Xia
He, Huiyu
Contributor
Advisor
Department
Instructor
Depositor
Speaker
Researcher
Consultant
Interviewer
Journal Title
Journal ISSN
Volume Title
Publisher
Volume
Number/Issue
Starting Page
Ending Page
Alternative Title
Abstract
Guided by prior theoretical studies of real effects of disclosure, we investigate whether pending patent disclosure under the American Inventor’s Protection Act (AIPA) can mitigate managerial myopic underinvestment in R&D. When there is limited information on R&D payoff, investors tend to fixate on earnings when valuing firms, which motivates managers to underinvest in R&D myopically. The AIPA requires pending patent disclosure within 18 months of patent application. Such disclosure provides timely, detailed, and credible information on R&D payoff and can serve as an additional signal of firm value, reduce investors’ fixation on earnings, and mitigate R&D underinvestment. We find that pending patent disclosure under the AIPA significantly mitigates R&D underinvestment, especially for firms that face greater pressure to meet or beat earnings targets. We also find that the mitigating effect is stronger for firms with more analysts following, higher institutional ownership, and more unique technologies.
Description
Keywords
Managerial Myopia, R&D Investments, AIPA, Pending Patent Disclosure
Citation
Extent
Format
Geographic Location
Time Period
Related To
Rights
Rights Holder
Email libraryada-l@lists.hawaii.edu if you need this content in ADA-compliant format.