Does financial information presentation format matter? Evidence from Chinese firms’ reporting of research and development expense

Partha Mohanram (), Wei Sun (), Baohua Xin () and Jigao Zhu ()
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Partha Mohanram: University of Toronto
Wei Sun: China Agricultural University
Baohua Xin: University of Toronto
Jigao Zhu: University of International Business and Economics

Review of Accounting Studies, 2025, vol. 30, issue 2, No 16, 1638-1682

Abstract: Abstract This paper investigates the effects of a regulatory change in China of the presentation format for research and development (R&D) expense, which mandates public firms to explicitly present R&D expense on their income statements. We predict that this regulation will impact nonstate-owned enterprises (non-SOEs), which care about stock market valuation, more than state-owned enterprises (SOEs). We find that non-SOEs report significantly higher R&D expense post regulation. Furthermore, the R&D increase strengthens for firms facing higher peer pressure to pursue R&D and high-tech firms and weakens for firms with higher institutional investment. The positive valuation implication of R&D diminishes post regulation, suggesting that investors discount the increase in R&D expense. An additional analysis shows that firms’ innovation efficiency decreases post regulation.

Keywords: Research and development expense; Presentation format; Earnings management; Capital market response; Real effects (search for similar items in EconPapers)
JEL-codes: G14 G32 M41 M48 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s11142-024-09868-y

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