Innovation and annual report readability

Dimitrios Gounopoulos, Winifred Huang and Min Yang

Research Policy, 2025, vol. 54, issue 8

Abstract: We explore the relationship between innovation and annual report readability using multiple innovation metrics. While lower readability can boost innovation, an inverted U-shaped link with patents suggests that excessive opacity becomes counterproductive. We identify two underlying mechanisms—preserving competitive advantages and concealing risks. Consistent with the first mechanism, the innovation-readability link is stronger in competitive markets, where firms reduce transparency to better protect themselves from competitors. In line with the second mechanism, the innovation-readability link is stronger for riskier firms. Overall, our findings support the idea that firms strategically tailor their disclosure to match their innovation needs.

Keywords: Annual report readability; Bog index; R&D; Patent (search for similar items in EconPapers)
JEL-codes: M41 O32 O33 O34 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:respol:v:54:y:2025:i:8:s0048733325001301

DOI: 10.1016/j.respol.2025.105301

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