Corporate innovation strategy and disclosure policy

We examine the impact of a firm’s innovation strategy on its disclosure policy. Using a sample of innovation-intensive U.S. firms from 1992 to 2012, we find that firms with higher intensity of exploratory (exploitative) innovation are more (less) inclined to issue management earnings forecasts. These forecasts are generally less (more) optimistic, accurate and precise. We also find that exploration-oriented firms issue more earnings forecasts in order to avoid disclosing proprietary information about their innovation activities. They tend to issue more conservative forecasts in order to avoid large stock price decline. Overall, exploration-oriented firms have a more opaque information environment as manifested in higher analyst earnings forecast error and greater forecast dispersion. Our findings suggest that knowledge-intensive firms appear to incorporate innovation strategy in developing their disclosure policy.