IDEAS home Printed from https://ideas.repec.org/a/eee/finlet/v86y2025ipfs1544612325020136.html

Adjustment of the presentation format of R&D expense and analyst forecasts

Author

Listed:
  • Wang, Duo
  • Li, Yanxi
  • Hao, Zihan

Abstract

Taking the 2018 revision of China's financial reporting standards that adjusted the presentation format of R&D expense as a quasi-natural experiment, this paper finds that the standard enhances the accuracy of analyst forecasts by improving corporate information disclosure quality and analysts' information acquisition precision. Heterogeneity analysis reveals that this standard demonstrates more pronounced forecasting improvement effects for high-tech firms, enterprises in highly competitive markets, and non-state-owned enterprises. Furthermore, the standard strengthens analysts' cautious attitudes, evident from more negative tones in their reports, and it lowers the cost of both equity and debt capital. These research findings provide empirical evidence on how financial statement format adjustments enhance accounting information quality, offering references for government departments in policy formulation and assisting investors in better utilizing analyst forecasts.

Suggested Citation

  • Wang, Duo & Li, Yanxi & Hao, Zihan, 2025. "Adjustment of the presentation format of R&D expense and analyst forecasts," Finance Research Letters, Elsevier, vol. 86(PF).
    • Handle: RePEc:eee:finlet:v:86:y:2025:i:pf:s1544612325020136
    DOI: 10.1016/j.frl.2025.108759
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1544612325020136
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.frl.2025.108759?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Ha, Wonsuk & Han, Seung-youb & Lee, Woo-Jong & Lim, Youngdeok, 2025. "Discretionary reporting and analyst forecasts of operating income under IFRS," The British Accounting Review, Elsevier, vol. 57(6).
    2. Donal Byard & Ying Li & Yong Yu, 2011. "The Effect of Mandatory IFRS Adoption on Financial Analysts’ Information Environment," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 49(1), pages 69-96, March.
    3. Lin, Hsiou-wei & McNichols, Maureen F., 1998. "Underwriting relationships, analysts' earnings forecasts and investment recommendations," Journal of Accounting and Economics, Elsevier, vol. 25(1), pages 101-127, February.
    4. Lee, Chang-Yang, 2009. "Competition favors the prepared firm: Firms' R&D responses to competitive market pressure," Research Policy, Elsevier, vol. 38(5), pages 861-870, June.
    5. Osman Yukselturk & Jon Tucker, 2015. "The impact of analyst sentiment on UK stock recommendations and target prices," Accounting and Business Research, Taylor & Francis Journals, vol. 45(6-7), pages 869-904, December.
    6. Zhou, Zhongsheng & Li, Zhuo & Du, Shanzhong & Cao, June, 2024. "Robot adoption and enterprise R&D manipulation: Evidence from China," Technological Forecasting and Social Change, Elsevier, vol. 200(C).
    7. Hollis Ashbaugh & Morton Pincus, 2001. "Domestic Accounting Standards, International Accounting Standards, and the Predictability of Earnings," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 39(3), pages 417-434, December.
    8. Mark H. Lang & Karl V. Lins & Darius P. Miller, 2003. "ADRs, Analysts, and Accuracy: Does Cross Listing in the United States Improve a Firm's Information Environment and Increase Market Value?," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 41(2), pages 317-345, May.
    9. Katherine A. Gunny, 2010. "The Relation Between Earnings Management Using Real Activities Manipulation and Future Performance: Evidence from Meeting Earnings Benchmarks," Contemporary Accounting Research, John Wiley & Sons, vol. 27(3), pages 855-888, September.
    10. Stephen V. Brown & Xiaoli (Shaolee) Tian & Jennifer Wu Tucker, 2018. "The Spillover Effect of SEC Comment Letters on Qualitative Corporate Disclosure: Evidence from the Risk Factor Disclosure," Contemporary Accounting Research, John Wiley & Sons, vol. 35(2), pages 622-656, June.
    11. Amihud, Yakov & Mendelson, Haim & Lauterbach, Beni, 1997. "Market microstructure and securities values: Evidence from the Tel Aviv Stock Exchange," Journal of Financial Economics, Elsevier, vol. 45(3), pages 365-390, September.
    12. Hirshleifer, David & Teoh, Siew Hong, 2003. "Limited attention, information disclosure, and financial reporting," Journal of Accounting and Economics, Elsevier, vol. 36(1-3), pages 337-386, December.
    13. Ole†Kristian Hope, 2003. "Accounting Policy Disclosures and Analysts' Forecasts," Contemporary Accounting Research, John Wiley & Sons, vol. 20(2), pages 295-321, June.
    14. Firth, Michael & Rui, Oliver M. & Wu, Xi, 2009. "The timeliness and consequences of disseminating public information by regulators," Journal of Accounting and Public Policy, Elsevier, vol. 28(2), pages 118-132.
    15. Dan Palmon & Ari Yezegel, 2012. "R&D Intensity and the Value of Analysts’ Recommendations," Contemporary Accounting Research, John Wiley & Sons, vol. 29(2), pages 621-654, June.
    16. Richard J Gentry & Wei Shen, 2013. "The impacts of performance relative to analyst forecasts and analyst coverage on firm R&D intensity," Strategic Management Journal, Wiley Blackwell, vol. 34(1), pages 121-130, January.
    17. Carlo D'Augusta & Matthew D. DeAngelis, 2020. "Does Accounting Conservatism Discipline Qualitative Disclosure? Evidence From Tone Management in the MD&A," Contemporary Accounting Research, John Wiley & Sons, vol. 37(4), pages 2287-2318, December.
    18. Bae, Kee-Hong & Bailey, Warren & Mao, Connie X., 2006. "Stock market liberalization and the information environment," Journal of International Money and Finance, Elsevier, vol. 25(3), pages 404-428, April.
    19. Ning Hu & Siqi Lu & Tao Ma & Jianfang Ye, 2020. "Short‐selling and cost of equity: evidence from China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(4), pages 3681-3707, December.
    20. Weidong Zhang & Pengbo Hu & Jenny J. Wang & Zeyu Li & Hongrui Zheng & Xue Gao, 2022. "Equity incentive plans and R&D investment manipulation: evidence from China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(3), pages 4157-4183, September.
    21. Francisco Covas & Wouter J. Den Haan, 2011. "The Cyclical Behavior of Debt and Equity Finance," American Economic Review, American Economic Association, vol. 101(2), pages 877-899, April.
    22. Chunlai Ye & Lin-Hui Yu, 2017. "The effect of restatements on analyst behavior," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 44(7-8), pages 986-1014, July.
    23. Mei Luo & Shuai Shao & Frank Zhang, 2018. "Does financial reporting above or below operating income matter to firms and investors? The case of investment income in China," Review of Accounting Studies, Springer, vol. 23(4), pages 1754-1790, December.
    24. Jing Ning & Luqiao Zhang & Biao Mi & Jessica Hong Yang & Lei Tao, 2025. "Signalling through managerial tone and analysts’ response," Accounting Forum, Taylor & Francis Journals, vol. 49(4), pages 803-829, August.
    25. Mola, Simona & Guidolin, Massimo, 2009. "Affiliated mutual funds and analyst optimism," Journal of Financial Economics, Elsevier, vol. 93(1), pages 108-137, July.
    26. Joshua Livnat & Yuan Zhang, 2012. "Information interpretation or information discovery: which role of analysts do investors value more?," Review of Accounting Studies, Springer, vol. 17(3), pages 612-641, September.
    27. Liu, Mark H., 2011. "Analysts’ Incentives to Produce Industry-Level versus Firm-Specific Information," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 46(3), pages 757-784, June.
    28. Partha Mohanram & Wei Sun & Baohua Xin & Jigao Zhu, 2025. "Does financial information presentation format matter? Evidence from Chinese firms’ reporting of research and development expense," Review of Accounting Studies, Springer, vol. 30(2), pages 1638-1682, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Eliwa, Yasser & Haslam, Jim & Abraham, Santhosh, 2021. "Earnings quality and analysts’ information environment: Evidence from the EU market," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 42(C).
    2. Liu, Xiangqiang & Dai, Jiajie & Dong, Xiaohong & Liu, Jia, 2024. "ESG rating disagreement and analyst forecast quality," International Review of Financial Analysis, Elsevier, vol. 95(PB).
    3. Zhang, Zhida & Ruan, Peiheng & Wang, Yuetang, 2025. "Does stock market liberalization restrain corporate misconduct: Evidence from research and development manipulation," International Review of Financial Analysis, Elsevier, vol. 106(C).
    4. Aboud, Ahmed, 2023. "Segmental reporting, accounting enforcement, and analyst forecast dispersion in the European Union," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 53(C).
    5. Partha Mohanram & Wei Sun & Baohua Xin & Jigao Zhu, 2025. "Does financial information presentation format matter? Evidence from Chinese firms’ reporting of research and development expense," Review of Accounting Studies, Springer, vol. 30(2), pages 1638-1682, June.
    6. Shirley Liu, 2017. "Does the requirement of an engagement partner signature improve financial analysts’ information environment in the United Kingdom?," Review of Quantitative Finance and Accounting, Springer, vol. 49(1), pages 263-281, July.
    7. Armen Hovakimian & Ekkachai Saenyasiri, 2014. "US Analyst Regulation and the Earnings Forecast Bias around the World," European Financial Management, European Financial Management Association, vol. 20(3), pages 435-461, June.
    8. Ramnath, Sundaresh & Rock, Steve & Shane, Philip, 2008. "The financial analyst forecasting literature: A taxonomy with suggestions for further research," International Journal of Forecasting, Elsevier, vol. 24(1), pages 34-75.
    9. García-Meca, Emma & Sánchez-Ballesta, Juan Pedro, 2006. "Influences on financial analyst forecast errors: A meta-analysis," International Business Review, Elsevier, vol. 15(1), pages 29-52, February.
    10. Blankespoor, Elizabeth & deHaan, Ed & Marinovic, Iván, 2020. "Disclosure processing costs, investors’ information choice, and equity market outcomes: A review," Journal of Accounting and Economics, Elsevier, vol. 70(2).
    11. Charitou, Andreas & Karamanou, Irene & Kopita, Anastasia, 2025. "Discontinuing analyst coverage due to resource reallocation: Euphemism for unfavorable firm outlook?," Journal of Corporate Finance, Elsevier, vol. 91(C).
    12. Tsang, Albert & Xiang, Yi & Yu, Li, 2023. "Cross-border regulatory cooperation and analyst forecasts," International Review of Financial Analysis, Elsevier, vol. 90(C).
    13. Matthias Demmer & Paul Pronobis & Teri Lombardi Yohn, 2019. "Mandatory IFRS adoption and analyst forecast accuracy: the role of financial statement-based forecasts and analyst characteristics," Review of Accounting Studies, Springer, vol. 24(3), pages 1022-1065, September.
    14. Pantic, B., 2016. "Comparability of financial reports: A literature review of most recent studies," Working Papers 6451, Graduate School of Management, St. Petersburg State University.
    15. Cao, Yue & Dong, Yancen & Chen, Wenrui & Fu, Jiaqian & Luo, Huitao, 2025. "CEO locality and R&D investment efficiency: Evidence from China," Economic Modelling, Elsevier, vol. 150(C).
    16. Pang, Silu & Hua, Guihong, 2024. "How does digital tax administration affect R&D manipulation? Evidence from dual machine learning," Technological Forecasting and Social Change, Elsevier, vol. 208(C).
    17. Simeng Liu & Kun Tracy Wang & Yue Wu, 2024. "Corporate Governance Reforms and Analyst Forecasts: International Evidence," Abacus, Accounting Foundation, University of Sydney, vol. 60(2), pages 272-304, June.
    18. Stephen A. Hillegeist & James P. Kavourakis & Matthew Pinnuck, 2023. "The association between quarter length, forecast errors, and firms’ voluntary disclosures," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(2), pages 1885-1918, June.
    19. Wang, Weimin & (Frank) Wang, Xu, 2014. "Predicting earnings in a poor information environment," Journal of Contemporary Accounting and Economics, Elsevier, vol. 10(1), pages 46-58.
    20. Muhammad Shahin Miah & Haiyan Jiang & Asheq Rahman & Warwick Stent, 2023. "The impact of IFRS complexity on analyst forecast properties: The moderating role of high quality audit," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(1), pages 902-928, January.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finlet:v:86:y:2025:i:pf:s1544612325020136. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/frl .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.