The Impact of Corporate Governance on Research and Development Voluntary Disclosure: UK Evidence

Abstract

Research and development (R&D) activities are characterised by unique features and limited mandated accounting disclosure. Hence, R&D investment is one of the most confidential activities creating information asymmetry. Consequently, firms that are involved in R&D activities may try to introduce more voluntary disclosure in order to reduce the information asymmetry and enhance their transparency.
Corporate disclosure has been examined in a large number of prior studies over the years. Recently, small numbers of studies have considered research and development voluntary disclosure in annual reports.
The current study seeks to introduce helpful insights into the R&D disclosure practices in annual reports. Moreover, it examines the impact of corporate governance on R&D voluntary disclosure in the annual reports of the UK non-financial firms with intensive R&D investments.
The sample consists of 505 firm-year observations of the UK non-financial listed firms, which are considered among the high spenders on R&D activities in the UK according to the R&D scoreboards, as published by the Department of Business Innovations and Skills (BIS).
Using content analysis, the R&D disclosure score is measured by self-constructed disclosure index. The current study employs two techniques to examine the relationship between the R&D voluntary disclosure and the independent variables: Ordinary Least Square (OLS), and Censored Regression (Tobit).
In terms of the level of R&D disclosure in annual reports, the findings reveal that, in average the UK firms introduce about 30% of the examined R&D disclosure index items. Moreover, the deviations in R&D disclosure score according to the industry type are significant. The results also show that, overall R&D disclosure is positively associated with board size and audit committee quality.