Does the presentation reform of R&D expenses in China ease financial constraints in corporate innovation?

Abstract

AbstractFocusing on a sample of 9387 observations in China over the period 2016−2019, this paper empirically examines whether the presentation reform of R&D expenses that is changed from notes to income statements, mitigates corporate financial constraints of Chinese listed companies. Findings offer evidence that the financial constraints of firms decrease after the policy change, which is owing to the alleviation of information asymmetry. Further analysis reveals that the effect of the presentation reform on financial constraints is less prominent among companies that are state‐owned, audited by the “Big four” and of higher institutional ownership. Overall, our study provides evidence supporting the influences of the format reform of financial reports and has implications for information users, regulators, and standard setters.