R&D disclosures and earnings management

Abstract

Purpose The purpose of this paper is to examine the effect of Research and Development (R&D) disclosures on earnings management practices. Design/methodology/approach This study has been conducted by using a longitudinal archival data set of French companies belonging to the CAC All-Tradable index and instrumental variable estimations. Findings The results of the research highlight the moderating effect of International Financial Reporting Standards (IFRS) adoption and the financial crisis in this relationship. It also shows that R&D disclosures are negatively associated with earnings management. The findings also show that the IFRS adoption is complementary in its monitoring role of managerial behavior in reducing earnings management in the presence of R&D disclosures. Furthermore, this study finds that the negative effect of R&D disclosures on earnings management is more prevalent during the global financial crisis. Originality/value This study examined the consequences of the voluntary disclosure of R&D information in the French context. It introduces a measurement for the disclosure of R&D activities in annual reports through the construction of an R&D disclosure index.

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